Answered: Assume a monopolist’s only cost is…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Economics

1. Assume a monopolist’s only cost is constant marginal cost of $2. Further assume there are 10 consumers with individual inverse demand of p = 10 − 2q. (a) What is the profit maximising price and quantity for the monopolist. (b) What are the consumer and producer surplus at this outcome. (c) What is the dead weight loss (compared to the socially optimal output and price). (d) Now assume the monopolist switches to a two part tariff (fixed fee and per unit fee). Find the profit maximising fixed fee and per unit fee.

Definition Definition Consumer surplus is the consumers' gain from trade. The consumer surplus is the area below the demand curve but above the equilibrium price, up to the equilibrium quantity. Producer surplus is the producer's gain from trade. The producer surplus is the area above the supply curve but below the equilibrium price, up to the equilibrium quantity. Consumer surplus is represented by Area A and producer surplus is represented by Area B.

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