ME Tutorial 14

Q1. Consider the monopolist that faces

the following market demand and total
cost functions:
Q = 22 P/5
TC = 100 10Q + Q2
a) Find the profit-maximizing price
(Pm) and output (Qm) for this firm.
At this pricequantity combination,
how much is consumer surplus?
b) Calculate
monopolys
economic
profit?
c) Suppose that government regulators
required the monopolist to set the
selling price at the long-run,
perfectly competitive rate. At this
price, what is consumer surplus?
d) Relative to the perfectly competitive
long-run equilibrium price, what is
the deadweight loss to society at
Pm?
Q2. A producer has the possibility of
discriminating between the domestic
and foreign markets for a product
where the demands, respectively, are
Q1 = 21 0.1P1, Q2 = 50 0.4P2
TC = 2000 + 10Q, where Q = Q1+Q2
a) What price will the producer charge
in order to maximize profits with
discrimination between markets,
and without discrimination?
b) Compare the profit differential
between discrimination and non
discrimination.
Q3: Suppose that International Dynamo is
a contractor in the oligopolistic
aerospace
industry.
International
Dynamo faces a kinked demand
curve for its product, which is defined
by the equations
Q1 = 200 2P;
Q2 = 60 0.4P
Suppose further that International
Dynamo has a constant marginal cost
MC = $50.
a. Give the price and output level for
International Dynamos product.
b. Based on your answer to part a,
what is International Dynamos
profit?

c. Determine the range of values

within which marginal cost may vary
without affecting the prevailing
market price & output level.
d. Diagram your answers to parts a, b,
and c.

ME Tutorial 14

Q1. Consider the monopolist that faces

the following market demand and total
cost functions:
Q = 22 P/5
TC = 100 10Q + Q2
a. Find the profit-maximizing price
(Pm) and output (Qm) for this firm.
At this pricequantity combination,
how much is consumer surplus?
b. Calculate
monopolys
economic
profit?
c. Suppose that government regulators
required the monopolist to set the
selling price at the long-run,
perfectly competitive rate. At this
price, what is consumer surplus?
d. Relative to the perfectly competitive
long-run equilibrium price, what is
the deadweight loss to society at
Pm?
Q2. A producer has the possibility of
discriminating between the domestic
and foreign markets for a product
where the demands, respectively, are
Q1 = 21 0.1P1, Q2 = 50 0.4P2
TC = 2000 + 10Q, where Q = Q1+Q2
a) What price will the producer charge
in order to maximize profits with
discrimination between markets,
and without discrimination?
b) Compare the profit differential
between discrimination and non
discrimination.
Q3: Suppose that International Dynamo is
a contractor in the oligopolistic
aerospace
industry.
International
Dynamo faces a kinked demand
curve for its product, which is defined
by the equations
Q1 = 200 2P;
Q2 = 60 0.4P

Suppose further that International

Dynamo has a constant marginal cost
MC = $50.
a. Give the price and output level for
International Dynamos product.
b. Based on your answer to part a,
what is International Dynamos
profit?
c. Determine the range of values
within which marginal cost may vary
without affecting the prevailing
market price & output level.
d. Diagram your answers to parts a, b,
and c.