Suppose a natural monopoly with diminishing average and marginal costs. Represent graphically: a) The price, production and profits of the monopolist. b) The regulation price that the government can establish if it wishes to reduce the loss of efficiency as much as possible.
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- A monopolist hires you to design its pricing policy. After month of doing market research you realize that the own-price elasticity is not the same for different groups of consumers in the market. (a) If group (a) has an own-price elasticity of 2.16 and group (b) 1.26. Assuming that the firm can directly observe an indicator of belonging to groups (a) and (b), what degree of price-discrimination can the monopolist implement? which group will end up paying more? (b) Will producer's surplus increase or decrease with price discrimination? what about consumer surplus? (consider single pricing vs price discrimination) (c) If a you get hold of a magic crystal ball that tells you the exact willingness to pay of each consumer. What type of price discrimination can the monopolist use to maximize profits? is this strategy “efficient” from the point of view of total surplus? are consumers better-off or worse-off? (Hint: A graph can greatly clarify this part.)Exercise A.3 Compare the competitive equilibrium with that of the first-degree price discriminating monopolist. Indicate the similarities and differences that exist in prices, quantities produced, consumer surplus and loss of efficiency between both situations. Represent graphically assuming that the marginal cost is constantConsider a monopoly that sells a product to consumers with a constant marginal cost of $13. There are two potential consumers. As a prior belief, each consumer thinks that the product is worth either $29 or $19 with equal probability, and he/she learns the true value of the product after trying it out. Each consumer may have a different perception of the value of the product, and these perceptions are independent events. The product is non-durable. Suppose there are two periods and each consumer demands at most one unit of the product in each period. After the first period, a company named InfoteX could conduct an online marketing survey to learn consumers perceptions of the product. By purchasing the survey from InfoteX, the monopolist knows whether a consumer is happy with the product (i.e., he/she thinks the product is worth $29 instead of $19 after trying it out) or not and can offer personalized prices to customers in the second period. Then the monopolist should charge $_______…
- Exercise A.6 A monopolist facing the demand curve Q = 42 – 0.6P operates with constant average and marginal costs equal to 20. a) Calculate the quantity, price and profit obtained by the monopolist. Represent graphically. (b) What quantity, what price and what benefit will you get if you can apply first-degree price discrimination? Calculate the consumer surplus and represent graphically. c) The monopolist warns that he can separate consumers into two distinct groups with demands Q1 = 12 - 0.1P1 and Q2 = 30 - 0.5P2. Calculate the quantities, the prices you will set in each market, and the profit you will make. Represent graphically.Exercise A.8 In a small town there is only one theatre, so the owner company is monopolistic and has a constant marginal cost of €10. A group of potential viewers, made up of workers, has the demand curve Q1 = 80 – P1. Another group of potential viewers, made up of retirees with lower incomes, has the demand curve Q2 = 80 – 2P2. (a) If the local authority authorises price discrimination, determine the monopolist's equilibrium and represent graphically. b) How would the result vary if you could discriminate prices? Represent graphically. c) Relate the equilibrium prices of the previous section with the elasticities of demand of the two groups of spectators. (d) If the monopolist could apply a double tranche tariff, what usage and entry fee would he set if the latter could be different for each group? What benefits would you get? Represent graphicallyAssume the definition of deductible elasticity that gives non-negative figures for normal demand. A monopoly that maximizes profit adapts so that the deductible elasticity is 2 and the price is NOK 500.What must then be the marginal costs of the monopoly? (Answers in whole kroner.)
- Exercise A.2 Explain why monopoly means less social welfare. Is there any kind of price discrimination that does not generate loss of social welfare? Graphically represent the two situations.Assume a monopolist produces rum and knows there are two groups of rum consumers, 1 and 2, with different price elasticities. Group 1 is highly price elastic with E1=-10; Group 2 exhibits a lower price elasticity of E2=-2.5. Assume the company can separate these two groups (e.g., by handing out special ID cards) and can charge two different prices. If P2=$14, how much can it charge to Group 1?Only answer BOLD and ITALIC part of the question. A monopolist has discovered that the inverse demand function of a person with income Y for the monopolist’s product is P = 0.002Y-Q where P is the price, Y the income, and Q is the output. The monopolist can observe the incomes of its consumers and hence vary its price accordingly. The monopolist has a total cost function C(Q) = 100Q. A monopolist has a constant marginal cost of £2 per unit and no fixed costs. He faces two separate markets in the United States and in the UK. The goods sold in one market are never resold in the other. He sets one price P1 for the US market and another price P2 for the UK market (both measured in £). The demand in the United States is given by Q1=7,000-700P1 and the demand in the UK is given by Q2=1,200-200P2. - Calculate the profit maximising output produced and price charged in each country by the price-discriminating monopolist and comment in which country the price charged is higher and by how much.…
- A monopolist sells a single good in two periods. There are two conumers who want to buy one unit of the good in each period. The willingnessto pay of consumer A is 2, while the willingness to pay of consumer B is 1.5. a) Would the monoplist want to set a price of 2 in the first period, if he can identify the consumer who bought the product in the next period. That is if he can track who has bought in the first period. Assume for the moment that consumer A buys in the first period at a price of 2.Yongling is a monopoly seller of a good in a town. She has a fixed supply of 8 units and no other costs. The market demand curve for the product is P = 20–q. What is her profit if she sells to all her clients at the same price? Group of answer choices $24 $36 $72 $48 $96Suppose a monopolist faces two groups of consumers. Group 1 has a demand given by P1=50-2Q1 and MR1=50-4Q1. Group 2 has a demand given by P2=40-Q2 and MR2=40-2Q2. The monopolist faces MC=AVC=ATC=$10 regardless of which group he supplies to. We can infer from the demand equations that Group ___ is the inelastic group because the demand is ____ than that of the other group. a. 2; flatter b. 2; steeper c. 1; steeper d. 1; flatter