Question 1: Consider a market where aggregate demand is given by Q = 100 – P There is a monopoly firm in the market with costs of production C(Q) = 500 + 200 (a) Suppose that the firm is regulated to break even using a linear price. What price will it choose? What is total welfare? Compare this to the case where the firm can profit maximize using a linear price. (b) Suppose that the market demand is made up of 6 "rich" consumers each of whom has inverse demand P = 100 – 6.39 And 4 "poor" consumers each with inverse demand P = 100 – 809 Find the profit maximizing (single) two-part tariff if the same two-part tariff is offered to all consumers (c) Find the optimal group two-part tariffs (if the firm can identify rich and poor) (d) Find the incentive compatible two-part tariffs (second degree price discrimination)

Question 1: Consider a market where aggregate demand is given by Q = 100 – P There is a monopoly firm in the market with costs of production C(Q) = 500 + 200 (a) Suppose that the firm is regulated to break even using a linear price. What price will it choose? What is total welfare? Compare this to the case where the firm can profit maximize using a linear price. (b) Suppose that the market demand is made up of 6 "rich" consumers each of whom has inverse demand P = 100 – 6.39 And 4 "poor" consumers each with inverse demand P = 100 – 809 Find the profit maximizing (single) two-part tariff if the same two-part tariff is offered to all consumers (c) Find the optimal group two-part tariffs (if the firm can identify rich and poor) (d) Find the incentive compatible two-part tariffs (second degree price discrimination)

Microeconomics A Contemporary Intro

10th Edition

ISBN:9781285635101

Author:MCEACHERN

Publisher:MCEACHERN

Chapter9: Monopoly

Section: Chapter Questions

Problem 1QFR

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