Review Questions – WN Chapter 10. ECON 500 – Summer 2004. WN Chapter #10 (“Monopoly”): Review Questions: 1, 2, and 6. Problems: 10.1, 10.2, 10.3, and 10.7. Additional Questions: 1) Consider a monopolist with CqqC=)( operating in a market with inverse demand given by qqP−= 500)(. Suppose 500<C . i. State the profit of this monopolist as a function of output. ii. For this monopolist, CqMC=)( and qqMR 2500)(−=. Determine: ii.a. *p , the profit maximizing price. ii.b. *q , the profit maximizing quantity. ii.c. *π, the resulting level of profit. ii.d. *DWL, the resulting deadweight loss. ii.e. *CS , the resulting level of consumers’ surplus. iii. Determine how each quantity in part (ii) changes as 500<C changes. iv. Redo the above question if instead qqP−=1000)( (in which case qqMR 21000)( −= ). 2) Consider a monopolist with costs given by FqqC+=23)( (so that 23)( =qMC ) operating in a market in which demand is given by the function 4320)(ppD = . i. Determine the price and quantity which maximize the profit of this monopolist. ii. Is this monopolist able to earn a positive profit? Clearly explain. iii. Does this monopolist produce the level of output which maximizes total social surplus? Clearly explain.3) Michael the Salmon Fisherman faces inverse demand of 10100)(qqPD−= , where q is the number of pounds of salmon he supplies to the market. This inverse demand curve is illustrated below. It follows that marginal revenue is 5100)(qqMR −=. Michael’s Total Costs of production are FcqqTC +=)( , with 1000 << c and 0>F . It follows that Marginal Costs of production are cqMC =)(. i. Draw the corresponding Marginal Revenue and Marginal Cost curves in the graph above, identifying all intercepts. ii. Graphically identify the profit maximizing level of output and the corresponding profit maximizing price. iii. Graphically illustrate the resulting “Consumers’ Surplus” and “Deadweight Loss” in this market. iv. Can you determine if Michael is able to earn a positive profit? Clearly explain. p q)(qPD 100 1000
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