Question 2 Please show all calculations to get credit (12 points) a. Consider a

Question

Question 2 Please show all calculations to get credit (12 points) a. Consider a monopolist who sells watches has the following demand function p 100-Q and cost function TC-0. Compute the equilibrium price, quantity, profit and consumer surplus set by the monopolist if the monopolist charges a uniform price (i.e. same price for all quantity). Compute the same numbers if this monopoly would be under perfect competition MR-IR:MC-, ?-TR-TC; TRs p xq (3 points (for monopoly)+3 points (for competition) 6 points) Suppose a profit-maximizing monopolist producing Q units of output faces the demand curve P 20-Q. Its total cost when producing Q units of output is TC- 24+Q. The fixed cost is sunk, you need to compute the Marginal Cost Curve. If price discrimination is impossible, how large will the profit of the monopolist be? Suppose the firm can engage in two-part tariff price discrimination (i.e. a gate fee and then each quantity is sold at a uniform price). How large will the profit of the monopolist be after two-part tariff price discrimination? How much extra profit does the producer capture when it can engage in two-part tariff price b. discrimination instead of charging a uniform price? MR 7 I (uniform price) TR- TC:TR2 p × q ? (after two-part tariff) = Gate Fee + Revenue-cost (3 points for monopoly +3 points for two-part tariff 6 points)

Explanation / Answer

ANs 1)

For Monopolist

Profit maximizing condition is MR=MC

Revenue=Price *Quantity=(100-Q)*Q=100Q-Q^2

Marginal Revenue=100-2Q

Marginal Cost=2Q

100-2Q=2Q

Q=25 and Price=100-Q=75

Profit=Revenue-Cost=P*Q-Q^2=75*25-625=1875-625=1250

Consumer Surplus=1/2(100-75)*(25)=312.5

Now for Perfect COmpetition

Profit Maximizing condition is

P=MC

P=2Q

100-Q=2Q

Q=33.33=33

Price=66

Consumer Surplus=0.5(100-66)*(33)=544.5

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