1) A monopolist faces the following demand curve P=222-2Q. The monopolist’s
cost is given by...

Question

1) A monopolist faces the following demand curve P=222-2Q. The monopolist’s
cost is given by C=2Q.
(a) Calculate the profit-maximizing quantity and the corresponding price. What is the
resulting profit/loss. Calculate the monopolist’s markup.(b) Calculate the profit-maximizing quantity and the corresponding price if this firm
were competitive and charged marginal-cost-prices? What is the resulting profit/loss.
Calculate the firm’s markup.(c) Compare the results to (a) and (b) and calculate the deadweight loss caused by the
monopoly.

2) A monopsonic Fast Food Chain exhibits a demand for labor given byw=210-3L,
wherewdenotes the wage andLthe quantity of labor hired. Workers’ labor supply is
given byw=2L+7.(a) Calculate the profit maximizing labor demand and the resulting wage paid for the
monopsonistic firm.

(b) Calculate the welfare loss compared to the competitive outcome.

3) Refer to the monopsony question above (Question 2). If the government imposed
a minimum wage ofw=70,what would be the resulting quantity of labor employed,
the wage, and the welfare loss. Also, calculate the change in welfare compared to the
free market outcome (i.e., in the absence of minimum wages). Is this a welfare gain or
a loss?

Robert · Accepted Answer

1) A monopolist faces the following demand curve P=222-2Q. The monopolist’s cost is given by 
C=2Q. 
(a) Calculate the profit-maximizing quantity and the corresponding price. What is the resulting 
profit/loss. Calculate the monopolist’s markup.
Answer: 
Monopolist Demand curve: P=222-2Q 
Cost curve: C=2Q 
Total revenue (TR) = P*Q = 222Q-2Q^2 
So, marginal revenue (MR) = dTR/dQ =  222 – 4Q 
Marginal cost (MC) = dC/dQ = 2 
Profit is maximized at a point where MR = MC i.e. 
222 - 4Q = 2,  
Simplifying this, we get profit maximizing quantity (Q*) = 55 
And profit maximizing price (P*) = 222-2*55 = $112 
Profit = P*Q – C = 112*55-2*55 = 6050 
Markup = (P-MC)/P
Given P  = $55 and MC = $2
Then markup = (55-2)/55 = 0.963636 or 96.36%
(b) Calculate the profit-maximizing quantity and the corresponding price if this firm were 
competitive and charged marginal-cost-prices? What is the resulting profit/loss. Calculate the 
firm’s markup. 
Answer: 
A firm in the competitive market would equate price with marginal cost to maximize the profit..

1) A monopolist faces the following demand curve P=222-2Q. The monopolist’s cost is given by C=2Q. (a) Calculate the profit-maximizing quantity and the corresponding price. What is the resulting...

Solution

Answer To This Question Is Available To Download

Related Questions & Answers

Submit New Assignment