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Amount of monopoly power an individual firm

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Q1. A monopolist firm faces a demand with constant elasticity of -2.0. It has a constant marginal cost of $20 per unit and sets a price to maximize profit. If marginal cost should increase by 25 percent, would the price charged also rise by 25 percent?

Q2. What factors determine the amount of monopoly power an individual firm is likely to have? Explain each one briefly.

Q3. First degree price discrimination is seen as perfect price discrimination. Why? Using a graph demonstrate that a firm continues to produce until P = MC and charges different prices from each consumer if it is able to apply perfect price discrimination. Give an example of first degree price discrimination.

Reference no: EM132511895

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