EBK PRINCIPLES OF MICROECONOMICS (SECON
2nd Edition
ISBN: 9780393616149
Author: Mateer
Publisher: W.W.NORTON+CO. (CC)
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Question
Chapter 10, Problem 4SP
To determine
Identify the necessary conditions that are met to establish a
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Students have asked these similar questions
The figure to the right shows the market demand for electricity and the average total cost and
marginal cost of producing electricity for a utility company.
Suppose the utility company is a regulated natural monopoly. If government regulators want to
achieve economic efficiency, then they will regulate a price of $ per kilowatt hour. (Enter a
numeric response using a real number rounded to two decimal places)
Now suppose instead that government regulators want to eat the lowest price such that the utility
company will not suffer a loss so that it will continue to produce in the long run. If so, then i
government regulators will set a price of $ per kilowatt hour.
Price and cost (dollars per kilowatt hour)
0.52
048
044-
040-
0.36
0324
0.26
0.24
0.20
0.16
0.12
0.06
004
0.00+
ATC
MC
4
8 12 16 20 24 28 32 36 40 44 48
Quantity of kilowatt hours (in billions)
The demand a monopoly faces is
p = 400 - Q+A 0.5
where Q is its quantity, p is its price, and A is the level of advertising. Its marginal cost of production is $40, and its cost
of a unit of advertising is $1. What is the firm's profit equation?
The monopoly's profit equation (л) as a function of Q and A is
π= (400-Q+A05) Q-40Q-A. (Properly format your expression using the tools in the palette. Hover over tools to
see keyboard shortcuts. E.g., a superscript can be created with the ^ character.)
The monopoly's profit-maximizing price is p = $270, quantity is Q = 260, and advertising is A = 16900. (Enter
numeric responses using real numbers rounded to two decimal places.)
If a monopoly faces an inverse demand curve of
p=450-Q,
has a constant marginal and average cost of $30, and can perfectly price discriminate, what is its profit? What are the consumer surplus, welfare, and deadweight loss? How would these results change if the firm were a single-price monopoly?
Profit from perfect price discrimination () is $88200. (Enter your response as a whole number.)
Corresponding consumer surplus is (enter your response as whole numbers):
welfare is
and deadweight loss is
Profit from single-price profit-maximization is = $44100. (Enter your response as a whole number.)
Corresponding consumer surplus is (enter your response as whole numbers):
welfare is
and deadweight loss is
CS = $0
W = $ 88200
DWL = $0.
CS = $ 22050
W = $ 66150
DWL = $ 22050
Chapter 10 Solutions
EBK PRINCIPLES OF MICROECONOMICS (SECON
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- Monopoly: Work It Out Earlier we mentioned the special case of a monopoly where MC = 0. Let’s find the firm’s best choice when more goods can be produced at no extra cost. Since so much e‑commerce is close to this model—where the fixed cost of inventing the product and satisfying government regulators is the only cost that matters—the MC = 0 case will be more important in the future than it was in the past. For each demand curve, calculate the profit-maximizing level of output and price as well as the monopolist's profit. a. ?=200−?P=200−Q, fixed cost = 1,000. Profit‑maximizing output Q = Profit‑maximizing price P = $ Monopolist's profit: $ b. ?=4,000−?P=4,000−Q, fixed cost = 900,000 (Driving the point home from part a) Profit‑maximizing output Q = Profit‑maximizing price P = $ Monopolist's profit: $ c. ?=120−12?P=120−12Q, fixed cost = 1,000…arrow_forwardIs a monopoly still subject the laws of supply and demand? How can it use these laws to its advantage?arrow_forwardSuppose the local electrical company, a legal monopoly based on economies of scale, was split into four firms of equal size, with the idea that eliminating the monopoly would promote competitive pricing of electricity. What do you anticipate would happen to prices? Why?arrow_forward
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