Question 1a firm with market power has estimated the

Assignment Help Microeconomics

Reference no: EM13347834

Question 1

A firm with market power has estimated the following demand function for its product:

Q = 12,000 - 4,000 P

where P = price per unit and Q = quantity demanded per year.

The firm's total costs are $4,000 when nothing is being produced. These costs increase by 50 cents for each unit produced.

a) Write the equation for the firm's total cost function

b) Write the equation for the firm's marginal cost function

c) Write the equation for firm's total revenue function (in terms of Q)

d) Write the equation for the firm's marginal revenue function (in terms of Q)

e) Assume the firm's objective is to maximize profit, and determine

The quantity of output it should produce
The price it should charge
The annual profit it will make

f) Given the price calculated in (e), what is the markup over AVC?

g) Calculate the price elasticity of demand at the price-quantity combination determined in part (e), and use it to determine the profit-maximizing markup. Compare with the markup calculated in (f). Do you find the result of the comparison surprising? Why or why not?

h) Explain whether the firm will make economic profit

In the short run

In the long run.

When answering the economic profit question, clearly specify your assumptions and illustrate with a diagram.

Question 2

A monopoly firm faces a demand curve P = 120 - Q. The monopolist's marginal cost curve (MC) is constant at MC = $4.

a) Determine the non-discriminating monopolist's profit-maximizing price and quantity (recall that the MR curve has the same intercept as the demand curve, but twice the slope).

b) Now assume the monopolist practices first-degree (perfect) price discrimination, i.e. is able to charge a different price to each customer. What is the quantity sold under this policy? What is the price charged for the last unit just sold?

c) Which of the two pricing strategies (single price vs. perfect price discrimination) results in greater social welfare (measured by the sum of the consumer and producer surplus)?

d) Which of the two pricing strategies results in greater consumer surplus?

e) How does the choice of pricing strategy affect allocative efficiency in the economy?

Reference no: EM13347834

Questions Cloud

Part aace company has a 30 percent marginal tax rate and : part aace company has a 30 percent marginal tax rate and uses a 12 discount rate to compute npv. the firm started a

You have been asked by your 56 year old auntmary to help : you have been asked by your 56 year old auntmary to help her assess a new venture. it is friday night and she needs the

Part iusing the data provided on the webvista site in the : part iusing the data provided on the webvista site in the file marked vdw.txt try to develop a mathematical equation

Problem 1 write a program that will generate an array of 10 : problem 1. write a program that will generate an array of 10 random 32-bit integers and that will show on the monitor

Question 1a firm with market power has estimated the : question 1a firm with market power has estimated the following demand function for its productq 12000 - 4000 pwhere p

Question consider that a country can produce just two : question consider that a country can produce just two things goods and services. suppose that over a given period it

The purpose of this project is to investigate the cost ofa : the purpose of this project is to investigate the cost ofa home mortgage and to determine the monthly payment.a couple

Capital budgeting caseprofit oil company : capital budgeting caseprofit oil company inc.backgroundpetroleum rig operations financed in texas inc hereafter

Question 1 band structurecarriers in a two-dimensional 2d : question 1 band structurecarriers in a two-dimensional 2d sample occupy a conduction band with the approximate

User Account

All Pages