As the manager of a monopoly, you face potential government regulation. Your inv

Question

As the manager of a monopoly, you face potential government regulation. Your inverse demand is P = 70 - 1Q, and your costs are C(Q) = 22Q.

a. Determine the monopoly price and output.

Monopoly price: $
Monopoly output:  units


b. Determine the socially efficient price and output.

Socially efficient price: $
Socially efficient output:  units


c. What is the maximum amount your firm should be willing to spend on lobbying efforts to prevent the price from being regulated at the socially optimal level?

$

Explanation / Answer

P = 70 - 1Q = 70 - Q

C = 22Q

(a)

TR = P x Q = 70Q - Q2

MR = dTR / dQ = 70 - 2Q

MC = dC / dQ = 22

Monopolist will equate MR with MC to maximize profits:

70 - 2Q = 22

2Q = 48

Q = 48 / 2 = 24

P = 70 - Q = 70 - 24 = 46

(b)

Social efficiency is ensured in perfect competition when P = MC.

70 - Q = 22

Q = 48

P = 70 - 48 = 22

(c)

So, the maximum amount that firm should be willing to spend is equal to monopoly price less competitive price, that is, $(46 - 22) = $24

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.