Compute the maximum profit

Reference no: EM132684197

Question 1 Explain, with appropriate diagrams and/or mathematical derivation, why a monopoly will only operate in the elastic region of the demand curve.

Question 2 A monopolist faces the (inverse) demand for its product: p = 50 - 2Q. The monopolist has a marginal cost of 10 per unit and a fixed cost given by F.

a) Compute the profit-maximizing price and quantity. Present your answers in an accurate and fully-labelled diagram.

b) Compute the maximum profit if F = 100.

c) Will this monopoly ever shut-down its production in the short-run? Why?

Question 3
Consider two duopoly quantity-setting firms facing a marginal cost of $60 and the following market demand:

p= 150 - q1 - q2

where q1i and q2 denote the quantity sold by Firm 1 and Firm 2, respectively.

a) Determine the Cournot equilibrium.

b) Determine the Stackelberg equilibrium when Firm 1 moves first.

Question 4
Suppose a monopolist finds that the market contains two groups of consumers. The demand function of the first group is qA = 90 - p and the demand function of the other group is qs = 65 - 0.5p. The marginal cost of production is $30.

a) What prices should the monopolist charge if he wants to practice multimarket price discrimination?

b) What is the connection between the price elasticity of demand and multimarket price discrimination?

c) Discuss one real-world example of a firm that practices multimarket price discrimination. (word limit = 300)

Reference no: EM132684197

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