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Consider an industry with a sole producer, a monopolist. The latter faces cost function C(Q)= Q/2 and aggregate (inverse) demand P(Q)=1 - Q (zero for Q> 1). Illustrate all your answers in a drawing
(a) What are the equilibrium quantity QM, price PM, pro?ts ΠM, consumer surplus CSM and total welfare WM for the case of non-discriminatory (uniform) pricing.
(b) Explain why for effciency, i. e. maximal total welfare, it must be the case that price equals marginal cost. Using this, compute the effcient quantity Q*.
(c) Finally, quantify the social cost arising from the monopoly by calculating the associated deadweight loss, telling you by how much the monopoly industry falls short of effciency.
Equilibrium in a single market model A single market model has three variables: the quantity demanded of the commodity (Q d ), the quantity supplied of the commodity (Q s ) an
a) In 1948, the money GNP was $520 billion and the price index was 120. In order to make the 1948 GNP comparable with the base year, the 1948 GNP must be adjusted to:
Explain the role scarcity of resources plays in economics decision making
Suppose that, in their divorce settlement, Ashton Kutcher offers Demi Moore $16 million spread evenly over 8 years (with the 1st payment upfront and the 2nd payment at the end of y
A firm is employing 100 hours of labor and 50 tons of cement to produce 500 blocks. Labor costs Rs 4 per hour and cement costs Rs 12 per ton. For the quantities employed MPL = 3 an
USES OF NATIONAL INCOME FIGURES We need national income statistics to measure the size of the "National cake' of goods and services available for competing uses o
State the Traditional demand theory So an over-simplified and the most commonly stated demand function is: Dx = f (PX) thatconnotes that demand for commodity X is the function
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Lender of Last Resort The central bank also acts as the lender of last resort. Historically, this function developed out of the special position of the central banks. The centr
Importance of Cross Elasticity Knowledge of cross elasticity is necessary when the government wants to impose a tariff on an imported commodity to protect a domestic industry.
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