Reference no: EM132443623

1. A monopolist faces demand given by P=18-0.5Q (MR=18-Q) and produces witha constant marginal cost of $10. Assume that there are no fixed costs. 

i. Solve for the profit-maximizing quantity and price. What is the firm's profit?

ii. If this was a competitive market, what would the equilibrium price and quantity be?

iii. Graph D, MR, and MC curves for the monopolist. Show the area that represents the social gain if the monopolist was forced to produce and price at the competitive equilibrium. Who would gain and lose as a result?

2. A profit-maximizing monopolist is producing 800 units of output and is charging $40 per unit.

i. Assume that the product's price elasticity of demand is -2. What is the MC of the last unit produced?

ii. What is the firm's percentage markup of P over MC?

3. A monopolist can produce its new patented drug in one of two plants, with costs of production of MC₁=20+2Q₁or MC₂=10+5Q₂.The firm estimates demand to be P=20-3Q, where Q= Q₁+Q₂.How much should the profit-maximizing firm produce in each plant? How much would it charge for the product? (Hint: graphing MC_1, MC_2, and demand on a single graph may help)

4. Micro Airlines (MA) provides flights for one route: Los Angeles-Miami. Demand per flight is Q=500-P, and each flight's cost is $30,000 plus $100 per passenger.

i. Solve for the profit-maximizing quantity and price. What is MA's profit?

ii. MA realizes that there are two types of travelers: business professionals (Type A) and students (Type B). Type A's demand is given by Q_A=260-0.4P, while Type B's demand is Q_B=240-0.6P. MA decides to charge each group a different price.

a. How much does MA charge business professionals? How many of them are on each flight?

b. How much does MA charge students? How many of them are on each flight?

c. Calculate the profit MA would receive from each flight. (Hint: both types of people will be on each flight. TR, for example, is the sum of the TRs from each group)