Downward-sloping linear demand curve

Assignment Help Business Economics

Reference no: EM131169317

Suppose a textbook monopoly can produce any level of output it wishes at a constant MC and AC of $5 per book. Assume that the monopoly sells its books in two different markets that are separated by some distance. The demand curve in the first market is given by: Q1=55-P1 and the demand curve in the second market is given by: Q2=70-2P2

(1) This problem is easier to solve if you work out the following premiminary result. show that for a downward-sloping linear demand curve, profits are maximized when output is set at Q*/2, where Q* is the output level that would be demanded when P=MC.

(2) If the monopolist can maintain the separation between the two markets, what level of output should be produced in each market and what price will prevail in each market? What are total profits in this situation?

(3) How would your answer change it it only cost demanders $5 to mail books between the two markets? What would be the monopolist's new profit level in this situation? How would your answer change if mailing costs were $0?

Reference no: EM131169317

Questions Cloud

Explain why arbitrage opportunity exists : Molson’s Beer is produced in Canada and sold in many countries. In the province of Ontario a six-pack of Molson’s beer sold for $8.00 Canadian. Across the border in Buffalo, NY a six-pack of the same beer was for sale for $6.00 US. How much would it ..

Terms of both fiscal policy and monetary policy : Identify the policy options for dealing with a recession and inflation respectively in terms of both fiscal policy and monetary policy and the respective schools of thought associated with them. Beginning from a state of equilibrium in the aggregate ..

Recently increased and market supply has recently decreased : You know that you are operating in a monopolistically competitive market, that is, you are a small part of a large market with many competitors in this market. From data collected on the Widget Market, you know that market demand has recently increas..

Draw the constraint for borrower and lender : Again, in the consumption savings model, assume that lump-sum taxes are zero. But suppose the government taxes on interest earnings. I.e. borrowers face interest rate r while the lenders face an interest rate (1 - t)r. What is the effect of introduci..

Downward-sloping linear demand curve : Suppose a textbook monopoly can produce any level of output it wishes at a constant MC and AC of $5 per book. Assume that the monopoly sells its books in two different markets that are separated by some distance. This problem is easier to solve if yo..

Calculate the short-run supply curve for each firm : A perfectly competitive painted necktie industry has a large number of potential entrants. Each firm has an identical cost structure such that long-run average cost is minimized at an output of 20 units (qi=20). What is the industry's long-run supply..

Change in supply and change in quantity supplied : What is the difference between a "change in supply" and a "change in quantity supplied?" For each of the following changes, determine whether there will be a change in quantity supplied or a change in supply.

Analyze four economic indicators : Analyze four economic indicators (unemployment rate, quits rate (quit rate in U.S. English), housing starts, consumer price index (a measure for inflation), consumer leverage ratio, industrial production, bankruptcies, gross domestic product, broadba..

Effect of introducing tax rate on consumer budget constraint : In the consumption savings model, assume that lump-sum taxes are zero and the utility function is given by U(c, c') = log c + β log c'. Suppose the government taxes on interest earnings i.e. borrowers face interest rate r while lenders face interest ..

User Account

All Pages