What price would firm set to maximize profit

Assignment Help Business Economics

Reference no: EM1369105

Q. A monopolist exists in an industry. Its cost is
TC = 100 - 5Q + Q2 and its demand is P = 55 - 2Q.

a. What price would firm set to maximize profit? Compute profit and Consumer Surplus.

In diagram given above blue shaded region is consumer surplus and green shaded region is deadweight loss. As you can see that demand function (P = 55 - 2Q) is dark blue line, pink line is showing marginal revenue (MR = 55 - 4Q) and saffron line is representing marginal cost function (MC = -5 + 2Q). From diagram, you can see that output where MR = MC is Q=10 and this Q=10 cut demand function at P = 35 which is profit maximization quantity and price for monopolist.

b. Compute deadweight loss from monopoly power in part (a).

c. Is this deadweight loss a sufficient reason to regulate monopolies? Does such regulation increase consumer welfare? (You can answer this question in general terms. Don't have to use computations in and b)

Reference no: EM1369105

Questions Cloud

Explain how theory explains all three empirical observation : These three empirical observations are explained by ‘Preferred Habitat theory'. First, completely explain Preferred Habitat theory. Next, explain how this theory explains all three empirical observations.

Compute upward force the ice exerts on the crate : A 40 kg crate is pulled across the ice with a rope. A force of 100 N is applied at an angle of 30 degrees with the horizontal. Neglecting friction.

What impulse acted on the booster unit : A 7.3 x10^3 kg space vehicle and its empty 6.8 x 10^2 kg booster unit are moving together through space at 370 m s. An explosion lasting 2.2s is used to separate the two parts.

What type of goods does law of one price hold quite well : For what type of goods does law of one price hold quite well. Since PPP rarely holds at any point in time, is re any substantive meaning to terms overvalued or undervalued currency.

What price would firm set to maximize profit : What price would firm set to maximize profit. Compute profit and Consumer Surplus.In diagram given above blue shaded region is consumer surplus and green shaded region is deadweight loss.

Effects of ms and md : Explain briefly how a change to the following MS, MD, or P would shift LM function to right. Include in your discussion whether the variable would have to increase or decrease to cause the rightward LM shift.

Dual-core approach management vs technology : Explain the dual-core approach. How does the process of management change normally differ from technology change and discuss

What is an angular acceleration if wheel started from rest : A wheel moves forward for 2 seconds making two complete revolutions. The wheel rotates during an arc length of 8.2 meters.

Explain effects of monetary policies on economy production : Explain effects of monetary policies on economy's production and employment. Cite your references appropriately. If you used an electronic source, include URL. If you used a printed source please attach a copy of data to your paper.

User Account

All Pages