Q P TR MR TC MC 0 11 0 ----- 4 ----- ----- 1 10 10 10 10 60 0 2 9 18 8 14 4 4 3
ID: 1202497 • Letter: Q
Question
Q
P
TR
MR
TC
MC
0
11
0
-----
4
-----
-----
1
10
10
10
10
60
0
2
9
18
8
14
4
4
3
8
24
6
20
6
4
4
7
28
4
27
7
1
5
6
30
2
37
10
-7
In the example above showing Andy’s profit maximizing output decision, you should have found that Joe sets his price above marginal cost (P > MC). We call this the
monopoly mark-up.
a. Can you think of a special case where Andy, despite being a monopoly, would find it profit maximizing to set P = MC?
b. Assume that Andy cannot price discriminate and briefly explain your answer. (hint: consider what makes Andy's case different from a perfectly competitive firm).
c. In general, what will determine the magnitude of the monopoly mark-up (hint: is it better to have a monopoly over bubble gum or water)?
Q
P
TR
MR
TC
MC
0
11
0
-----
4
-----
-----
1
10
10
10
10
60
0
2
9
18
8
14
4
4
3
8
24
6
20
6
4
4
7
28
4
27
7
1
5
6
30
2
37
10
-7
Explanation / Answer
a.
Yes! In a case where she can cut down the costs to that point
b.
Bcoz there is an availability of perfect substitute of the product she produces
c.
Water is a necessary good. From public point of view, water being monopoly is terrible. But from the business point of view, it is profitable
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