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Problem Set Monopoly

The document contains 8 problems related to monopoly pricing and profit maximization. The problems cover topics like finding the profit maximizing price and quantity for linear demand curves, constant elasticity demand curves, and multi-plant monopolies. The problems also analyze concepts like deadweight loss, consumer surplus, and the impact of price ceilings.

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asmitamittal1998
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39 views1 page

Problem Set Monopoly

The document contains 8 problems related to monopoly pricing and profit maximization. The problems cover topics like finding the profit maximizing price and quantity for linear demand curves, constant elasticity demand curves, and multi-plant monopolies. The problems also analyze concepts like deadweight loss, consumer surplus, and the impact of price ceilings.

Uploaded by

asmitamittal1998
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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MEC 103

Problem Set : Monopoly Aishna Sharma


April 2024

1. Suppose a Monopolist faces a linear demand curve P=a-bQ and has a constant marginal cost, MC=c.
Find out the profit maximizing quantity and price.

2. A monopoly faces market demand Q = 30 − P and has a cost function C(Q) = 1/2. Q 2
(a) Find the profit maximizing price and quantity and the resulting profit to the monopoly.
(b) What is the socially optimal price?
(c) Calculate the deadweight loss (DWL) due to the monopolist behavior of this firm.
(d) Calculate consumer surplus (CS) and producer surplus (PS) under monopoly.

3. The general form of a constant elasticity demand curve is Q = a.P- b. At every point on such a curve, the
price elasticity of demand equals -b. Suppose a monopolist has a constant marginal cost MC = $50.
Answer the following questions:
(a) What is the monopolist’s optimal price if its constant elasticity demand curve is Q= 100P-2?
(b) What is the monopolist’s optimal price if its constant elasticity demand curve is Q =100P-3 ?

4. Suppose a monopolist has the demand function Q =1,000P-3. What is the monopolist’s optimal markup
of price above marginal costs?

5. The marginal cost of preparing a large latte in a specialty coffee house is $1. The firm’s market research
reveals that the elasticity of demand for its large lattes is constant, with a value of about -1.3. If the
firm wants to maximize profit from the sale of large lattes, about what price should the firm charge?

6. Suppose a monopolist faces a demand curve given by P=200/3-Q/6. The monopolist has twin plants.
The first has a marginal cost curve given by MC1=10+2Q1, and the second plant’s marginal cost curve
is given by MC2= 20+Q2.
a) Find the monopolist’s optimal total quantity and price.
b) Find the optimal division of the monopolist’s quantity between its two plants.

7. A multi-plant monopolist faces demand P = 460 - 6Q . The first plant has total cost, TC1 = 2.5Q2 and
the second plant has total cost, TC2=5Q2.
a. Find the monopolist’s optimal total quantity and price.
b. Find the optimal division of the monopolist’s quantity between its two plants.

8. A monopolist faces a demand P=50-Q. The total cost faced by this firm is TC=20+Q2.
a. Find out the equilibrium price charged by this firm and the quantity supplied.

b. Assume that the government puts a price ceiling on the monopolist in order to maximize
consumer surplus. What should be that price? What would be the quantity sold? What will
be the deadweight loss at this quantity?

c. What was the deadweight loss when the firm was still operating at monopoly price?

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