Suppose that the inverse demand curve for paper is p = 200 - Q, the private marginal cost (unregulated competitive market supply) is MCp = 80 + Q, and the marginal harm from gunk is MCg = Q. What is the unregulated competitive equilibrium? What is the social optimum? What specific tax (per unit of output or gunk) results in the social optimum? What is the unregulated monopoly equilibrium? How would you optimally regulate the monopoly? What is the resulting equilibrium?

Suppose that the inverse demand curve for paper is p = 200 - Q, the private marginal cost (unregulated competitive market supply) is MCp = 80 + Q, and the marginal harm from gunk is MCg = Q. What is the unregulated competitive equilibrium? What is the social optimum? What specific tax (per unit of output or gunk) results in the social optimum? What is the unregulated monopoly equilibrium? How would you optimally regulate the monopoly? What is the resulting equilibrium?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter14: Monopoly

Section: Chapter Questions

Problem 14.6P

See similar textbooks

Similar questions

Assume that Gas & Minerals is the only copper mining firm in Chile. The national demand for copper in thousands of tonnes per month is: q^d(p) = 15 - pThe total costs in millions of dollars are: c(q) = 5q(a) What would be the profit-maximising level of production for this firm? Determine the monopoly price and quantify the profits. Graph the demand, marginal revenue and marginal cost, identifying their values along with determining the social loss generated and identifying it in the graph above. Assume now that due to a bad internal restructuring, the operations manager was fired and a professional with little mining experience was hired. The new manager does not know environmental protocol and mining waste (tailings) has gotten out of control and has been dumped into a river. This generated a negative externality on copper production. The estimated damage is US$5 million per 1,000 tonnes.(b) Obtain the social marginal cost of this mining activity.(c) What level of production will…
A monopolist faces a market demand curve given by: Q = 80 - p.Assume that the monopolist has a cost structure where total costs are described by: C(Q) = 0.25Q2 - 5Q + 1000.The monopoly will choose a price-quantity combination of (50 and 30) to maximize profit. The total profit is 425. Question 1: What output level would be socially optimal? What is the price at this output level, if all units are sold at the same price? What is the profit? What would the social welfare gain be from this output level compared to the outcome described above?Question 2: If government regulation forces the firm to set its price equal to its average cost of production, what will the output level be? What is the price at this output level, if all units are sold at the same price? What is the profit? What would the social welfare gain or loss be from this output level compared to the outcomes in (question 1) and where profit was 425, and price -quantaty combination (50 and 30)?
Continue with your analysis of the monopoly cable-television company with demand of Qd = 60 - P/2 (alternatively, you can write the demand equation as Qd = 60 – 0.5P) and MC = 0.5Q + 30. Explain how you’ve determined the socially optimal output level. How does the socially optimal output compare to the monopolist output in terms of individual CS, PS, and DWL (e.g., compare CSm and CSSOC, and so on)? How does the total surplus (sum of consumer and producer surpluses) compare between the two situations? (Narrative response; suggested length of four to eight sentences or one to two paragraphs. It might be useful to create a table to contrast the two settings.)
The demand and total cost functions for a monopoly firm are:Q(P) = 39.5 – 0.5PTC(Q) = 60 – Q + 0.5 Q2a) Plot the demand, marginal revenue, marginal cost, and average total cost curves, including the intersections with the horizontal and vertical axes. b) What are the profit maximising QM and PM for this firm? c) What is the firm’s profit πM? d) What are the firm's fixed and variable costs? e) What would be the socially optimal Q* and P* (round to 1 decimal place if needed)?
As the manager of a monopoly, you face potential government regulation. Your inverse demand is P = 50 - 1Q, and your costs are C(Q) = 18Q.a. Determine the monopoly price and output.Monopoly price: $___ Monopoly output units____b. Determine the socially efficient price and output.Socially efficient price: $____ Socially efficient output Units___c. What is the maximum amount your firm should be willing to spend on lobbying efforts to prevent the price from being regulated at the socially optimal level?$____
As the manager of a monopoly, you face potential government regulation. Your inverse demand is P = 40 − 2Q, and your costs are C(Q) = 8Q. a. Determine the monopoly price and output. b. Determine the socially efficient price and output. c. What is the maximum amount your firm should be willing to spend on lobbying efforts to prevent the price from being regulated at the socially optimal level?
For each of the following statements, tell whether the statement is TRUE, FALSE, or UNCERTAIN, and explain your reasoning. a) If the good produced by a monopoly causes positive externalities, then the extra benefit of the positive externalities will mitigate any deadweight loss caused by the monopoly's pricing power. b) When income rises, a demand curve will always shift out, increasing the quantity that will be bought at all price levels. c) The demand for a good will shift inward when the price of a complementary good increases d) If rent control is imposed in a city then this will cause landlords in neighboring cities to lower their rents to compete with landlords in the rent-controlled city; otherwise, they will lose tenants to the rent-controlled city
Explain natural monopoly in case of public production of private goods.
Continuing with our analysis of a positive externality, in this question, we want to determine what would happen if the market was served by a monopolist. Suppose someone acquired all the firms in this industry. This new monopolist would have the exact same MC curve (the sum of the MC of the various competitive firms it acquired, also shown as S0) as shown in the introduction to Questions 5 through 7. The downward sloping demand curve would be the same as D0 (marginal private benefit curve), which does not take into account the positive externality of this good. Would the monopolist’s profit maximizing output be higher, lower, or the same as that of the competitive market? Explain your answer (no graph required). In this monopoly scenario, would the socially optimal output be higher, lower, or the same as the socially optimal output you identified for the competitive market with positive externalities in Question 6? Explain your answer (no graph required). In this monopoly scenario,…
Consider a market in which a firm has monopoly power. Suppose in addition that the firm produces under the presence of either a positive or a negative externality. Does the externality necessarily lead to a greater misallocation of resources? Answer should be in own words.
Monopoly Equilibrium Suppose a firm operates as a monopoly in an unregulated market. The firm's total cost function for producing quantity, Q is given by the equation: TC 2000+200Q + Q^2. The market demand curve is given by the equation: Q = 220 0.5P. a. What is the firm's marginal cost curve? Show graphically. b. What is the firm's marginal revenue curve? Show graphically. c. Calculate the monopoly's profit maximizing price and quantity. Show graphically. d. What is the socially efficient price and quantity? Show graphically. e. When moving from the socially efficient price and quantity to the monopoly solution: a. How does consumer surplus change? b. How does producer surplus change? c. What is the social cost of the monopoly solution? f. Calculate the monopoly rents.
The demand and total cost functions for a monopoly firm are: Q(P) = 39.5 – 0.5P TC(Q) = 60 – Q + 0.5 Q2 1. What is the firm’s profit πM? Indicate this on the graph. 2. What are the firm's fixed and variable costs? 3. What would be the socially optimal Q* and P* (round to 1 decimal place if needed)