I am stuck on the first part of this problem. I am having trouble with the follo

Question

I am stuck on the first part of this problem. I am having trouble with the following:

Questions:

A) I found the MC line and the demand curve but I cannot figure out how to derive a supply line or find the equilibrium point for part a. I also cannot find total revenue? I understand that TC = 2 * Q, but how can i find revenue and consumer surplus from those to equations?

Can someone please help me answer these questions, or at least guide me in the right direction.

Thank you

Exercises For instance, consider a monopolist that pollutes. When a firm is a monop- increase price although it sells fewer units, the higher price more than makes up for the reduced volume Consumers lose, and total welfare is reduced, due to the higher price and lower olist, it reduces its production so that it can i quantity. The pollution problem, in contrast, is excess production (a) Draw a supply-demand figure for a firm with the demand curve Q 10 P and marginal cost curve MC-2 (based on total costsC-Q). If this were not a monopoly, what would be the equilibrium price and quantity? Calculate the firm's total revenue, total cost, and profit. Also calculate consumer surplus. Net benefits are consumer surplus plus producer surplus, which equals profit in this case: calculate that value (b) Suppose that, instead, the firm decided to act like a monopolist and restrict output. It produces 4 units and charges $6 for each unit. Calculate the firm's total revenue, total cost, and profit; consumer surplus; and net benefits. Are net benefits higher or lower? Is the firm better or worse off? (c) Now let's consider the pollution problem. Suppose the firm produces mar ginal damages of $4/unit. For both (a) and (b). recalculate net benefits to account for the social damages (d) Find the new efficient çauilibrium, now that social marginal costs are s6/unit Calculate the firm's total revenue, total cost (including the pollution cost), and profit; consumer surplus; and net benefits. (e) The monopolist, if forced to pay social marginal costs, will produce 2 units m's total revenue, total cost urplus; and net and charge $8 for each unit. Calculate the fir (including the pollution cost), and profit: consumer benefits. (f) Compare the results for (c). (d), and (e). Rank them, from the highest net benefits to the lowest (g) A regulator who can break up monopolies is examining this situation. Com pare net benefits for the monopolist who pollutes [the recalculation for the monopolist in part (c)] with the competitive firm that pollutes [the recalcu lation for the competitive firm in part (c) Will the regulator improve net benefits by breaking up the monopoly? (h) A regulator who addresses pollution separately examines the situation Compare net benefits for the monopolist who pollutes [the recalculation for benefits for the monopolist who pays the full costs of pollution in (e). Will this regulator increase net benefits by tax- the monopolist in (c)] with net ing pollution? failure always improve welfare compared with not fixing it? i) Doe s the "Theory of the Second Best" apply here? Does fixing a market

Explanation / Answer

a. Firstly , the MC line is itself the Supply line

and Equilibrium will be at the point where MC = P and P = 10 - Q

So, MC = 10 - Q

2 = 10 - Q

Q = 8

P = 10 - Q = 10 - 8 = 2

Total Revenue = P*Q = 2*8 = 16

Total Cost = MC*Q = 2*8 = 16

Profit = TR - TC = 0

Consumer Surplus = Area of upper traingle = 1/2*(Vertical Intercept of Demand - price)*quantity

= 1/2(10 - 2)*8

= 32

Producer Surplus = 0

If you don't understand anything or have any other doubt, then Comment , I'ill revert back on the same. :)

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