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    The document presents a diagram showing demand, marginal revenue, and marginal cost curves for a monopolist. It asks to: 1) Find the profit-maximizing output and price for the monopolist 2) Calculate the price and output if competitive firms sold the product 3) Calculate the deadweight loss of the monopoly

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    20 views5 pages
    The document presents a diagram showing demand, marginal revenue, and marginal cost curves for a monopolist. It asks to: 1) Find the profit-maximizing output and price for the monopolist 2) Calculate the price and output if competitive firms sold the product 3) Calculate the deadweight loss of the monopoly

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    The document presents a diagram showing demand, marginal revenue, and marginal cost curves for a monopolist. It asks to: 1) Find the profit-maximizing output and price for the monopolist 2) Calculate the price and output if competitive firms sold the product 3) Calculate the deadweight loss of the monopoly

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    20 views5 pages

    This Study Resource Was

    Uploaded by

    lana del rey
    The document presents a diagram showing demand, marginal revenue, and marginal cost curves for a monopolist. It asks to: 1) Find the profit-maximizing output and price for the monopolist 2) Calculate the price and output if competitive firms sold the product 3) Calculate the deadweight loss of the monopoly

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 5

    The accompanying diagram shows the demand, marginal revenue, and marginal cost of a monopolist.

    a) Determine the profit-maximizing output and price.


    b) What price and output would prevail if this firm’s product was sold by price-taking firms in a perfectly
    competitive market?
    c) Calculate the deadweight loss of this monopoly.

    m
    er as
    co
    eH w
    o.
    rs e
    ou urc
    o
    aC s
    v i y re
    ed d

    To find the profit maximizing output and price,MR=MC,


    ar stu

    Hence, the profit maximizing output (Q) is 3 and the price (P) is $40

    b.

    To discover the value and yield would win if the association's items were sold by value taking in a
    sh is

    splendidly aggressive business sector,


    Th

    set MC=D,

    the yield (Q) is 4 and the value (P) is $60.

    In spite of the fact that the business sector has one merchant, the monopolist can't settle on
    choices about P and Q autonomous of one another. In the event that the Monopolist decides the P
    through (MR =MC), then the business decides the value comparing to this yield.

    c.

    This study source was downloaded by 100000808893103 from CourseHero.com on 11-15-2021 04:46:30 GMT -06:00

    https://www.coursehero.com/file/18916203/MANAGERIAL-ECONOMICS-QUIZ-2/
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    This study source was downloaded by 100000808893103 from CourseHero.com on 11-15-2021 04:46:30 GMT -06:00

    https://www.coursehero.com/file/18916203/MANAGERIAL-ECONOMICS-QUIZ-2/
    The above diagram illustrates the dead weight loss generated by a
    monopoly. From this, we can see that the dead weight loss monopoly
    formula is:

    m
    er as
    1÷2 (P - MC) (Qc - Qm)

    co
    eH w
    MC = marginal cost
    P = price

    o.
    Qc = Quantity provided in competitive market
    rs e
    Qm = Quantity produced by monopoly.
    ou urc
    o

    P(Q) = a + bQ
    aC s
    v i y re

    A is a number greater than zero and b is a number less than zero

    From the graph;


    ed d
    ar stu

    When Q = 4  20 = a + 4b

    When Q = 3  40 = a + 3b
    sh is
    Th

    After the calculation ends, we will find that a= 100 and b=-20 so the
    function should be like

    P = 100 - 20Q

    When we look at the graph for the point that MR = MC then we find that
    the Qc = 3

    This point corresponds to the point where Marginal revenue (MR) =


    Marginal Cost (MC)

    This study source was downloaded by 100000808893103 from CourseHero.com on 11-15-2021 04:46:30 GMT -06:00

    https://www.coursehero.com/file/18916203/MANAGERIAL-ECONOMICS-QUIZ-2/
    Firstly, we need to know what the marginal revenue equation is. Well, if
    the demand curve is linear (a straight line) then it will always have a
    slope twice the size of the demand curve and the same intercept term.

    Since demand is: P = 100 - 20Q this means that MR = 100 - 40Q.

    Now we equate MR = MC such that

    40 = 100 - 40Q and re-arranging we will find Q = 1,5

    Therefore, Qm = 1,5

    To find the price, we get our function P = 100 - 20Q and we substitute in
    our value for Qm.

    m
    P = 100 - 20 (1.5) = 70

    er as
    co
    eH w
    We now have all the pieces of information that we need. If we plug them
    all into our DWL formula [(P - MC) (Qc - Qm) ]/2 we will get:

    o.
    DWL = [(70 - 40) (3 – 1,5)]/2 = 22,5
    rs e
    therefore, our dead weight loss will be 22,5. And that's how we calculate
    ou urc
    the size of the dead weight loss!
    o
    aC s
    v i y re

    7. You are the manager of a monopolistically competitive firm, and your demand
    and cost functions are given by Q = 20 - 2P and C(Q) = 104 - 14Q + Q2.
    ed d
    ar stu

    a. Find the inverse demand function for your firm’s product.


    b. Determine the profit-maximizing price and level of production.
    c. Calculate your firm’s maximum profits.
    d. What long-run adjustments should you expect? Explain
    sh is
    Th

    Answers:

    Q = 20- 2P and C(Q)=104-14Q +Q2

    a. Find the inverse demand function for your firm’s product.

    Q = 20- 2P then the P= (20-Q)/2


    (So the inverse demand function is Q=(20-P)/2. P=20-2Q)

    This study source was downloaded by 100000808893103 from CourseHero.com on 11-15-2021 04:46:30 GMT -06:00

    https://www.coursehero.com/file/18916203/MANAGERIAL-ECONOMICS-QUIZ-2/
    b. Determine the profit-maximizing price and level of production.

    R=P*Q={(20-2Q)*Q}2=10Q-Q2 /2

    MR=10-Q

    MC= -14+2Q

    MR=MC. Q=8 units. Then the P=(20-8)/2=6.

    c. Calculate your firm’s maximum profits.

    R= 6*8=$48.

    C=104-112+64=$56.

    m
    er as
    co
    So the firm loss $8.

    eH w
    o.
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    This study source was downloaded by 100000808893103 from CourseHero.com on 11-15-2021 04:46:30 GMT -06:00

    https://www.coursehero.com/file/18916203/MANAGERIAL-ECONOMICS-QUIZ-2/
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