(10 points) lb. An article in the New York Times (October 18, 1990) described a
ID: 1097437 • Letter: #
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(10 points) lb. An article in the New York Times (October 18, 1990) described a successful marketing campaign by the French champagne industry. The article also noted that many executives felt giddy about the stratospheric champagne prices. But they also feared that such sharp price increases would cause demand to decline, which would then cause prices to plunge. What mistake are the executives making in their analysis of the situation? Explain and illustrate your answer with a graph. (16 points) The accompanying diagram depicts a monopolist whose price is regulated at 2 a. $10 per unit. Use this figure to answer the questions that follow. a. What price will an unregulated monopoly charge and what quantity will an Unregulated monopoly produce? Explain. b. How many units will a monopoly produce when the regulated price is $10 per unit? Explain. C. Determine the quantity demanded and the amount produced at the regulated price of $10 per unit Is there a shortage or a surplus? Explain. . d. Determine the regulated price that maximizes social welfare. Is there a shortage or a surplus at this price? (Note that the price maximizes social welfare is P=MC). Explain.Explanation / Answer
Due to mlutiple questions asked, answer to only the second question is provided here.
Please ask the other question in another post.
a)
Unregulated monopoly’s profit maximization condition: MR=MC
Looking at the given graph, the equilibrium occurs at P=$16, Q=4
b)
When regulated P=$10, the quantity produced will be 2 units.
That is, the point where the regulated price intersects the marginal cost curve.
c)
At the regulate price,
Quantity demand = 10 units
Quantity produced = 2 units
So, there will be a shortage of the good in the market, as quantity demanded exceeds quantity supplied.
d)
The price which maximized social welfare (P=MC=DD) = $14.
At this point too there will be shortage in the market.
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