Consider a market with only one firm and total barriers to entry in which the demand curve is given by P = 80 - 2Q and MR = 80 - 4Q. Suppose that total costs is equal to 0). What would be the prevailing price in this market? P = 20 P = 50 P = 30

1. The cost function for any potential firm in a manufacturing industry is C(y) = 2 + 8y + 2y? (if a firm exits the industry, then its cost is zero). The inverse market demand function is given by P(y) = 100 – 2y. (a) If there is only one firm in the industry (the firm is a monopolist), what is the optimal output and the markup of the firm in equilibrium?

In a small town there is only one movie theater. If the theater is open, the owners have to pay a fixed amount of $6,000 for the films, ushers, etc., regardless of how many people come to the movie. For simplicity, assume that if the theater is closed, its costs are zero. The demand function for movies in the town is characterized by A = 45-T 60 a. Graph the market demand curve, the marginal revenue curve, and the marginal cost curve. Label the axes, curves, and intercepts. b. Find the profit-maximizing price and quantity of movie tickets, and indicate them on the graph. How much would the theater make in profits? c. Calculate deadweight loss caused by the monopoly and indicate the area on the graph. |

Problem 3. British airways has regular flights between Arizonia and Oregon. It can treat travers A and B as separate markets. Suppose that it notes a demand function of Q=16-P for A travelers and a demand function Q=10-P for B travelers and that it has a cost function for all travelers of C(Q)=10+Q2. How much should it charge in each market to maximize its profit? Verify that your answer represents a profit-maximizing point rather than a profit-minimizing point for the airline.