1. The widget Industry in Anytown is a monopoly,
controlled by Widget Corp. Its demand curve for the...

Question

1. The widget Industry in Anytown is a monopoly,
controlled by Widget Corp. Its demand curve for the local market is given by
P = 800 – 20 W
Where W represents the number of widgets sold per period.
The total cost function (including opportunity or implicit costs) for
Widget Corp. is
TC = XXXXXXXXXXW + 10 W2

a.
Assuming the
industry is unregulated, what are the equilibrium price and output and economic
profits earned by Widget Corp.?
b.
If the industry is
regulated and the regulatory authority forces Widget Corp. to earn only a
normal return on investment (which is included in its cost function), what is
the resulting equilibrium price and quantity?
c.
What happens to
consumer surplus? What happens t o the economic profits earned by Widget Corp.?

David · Accepted Answer

1. The widget Industry in Anytown is a monopoly, controlled by Widget Corp. Its demand curve 
for the local market is given by  
P = 800 – 20 W 
Where W represents the number of widgets sold per period. 
The total cost function (including opportunity or implicit costs) for Widget Corp. is 
TC = 300 + 500 W + 10 W
2
 
a. Assuming the industry is unregulated, what are the equilibrium price and output and 
economic profits earned by Widget Corp.? 
Answer: 
Total revenue (TR) = P*W = 800W-20W
2
 
Marginal revenue (MR) = dTR/dW = 800 - 40W 
Marginal cost (MC) = dTC/dW = 500+20W 
In a unregulated market,

1. The widget Industry in Anytown is a monopoly, controlled by Widget Corp. Its demand curve for the local market is given by P = 800 – 20 W Where W represents the number of widgets sold per period....

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