Economics Problem Set

 

Mark EversPRIVATE

Economics 1030

University of Denver

Autumn 2012

PROBLEM SET #11 — Monopoly

1. The cost and demand schedules for a monopoly firm are given below:

P
Qd
TR
MR
TC
AVC
ATC
MC

$15
0

$10
—
—
—

14
1

$2

13
2

$8

12
3

22

11
4

8

10
5

8

9
6

52

8
7

14

7
8

10.25

6
9

$10

a. Complete the rest of the table and graph the demand, MR, AVC, ATC and MC curves in a single diagram.

b. What is the monopolist’s profit maximizing level of output and price? Why? What are the profits and losses of the firm? What will happen in the long run in this market?

2. The cost and demand schedules for a market are given below:

P
Qd
TR
MR
TC
ATC
MC

$20
0

$0

19
1

13

18
2

26

17
3

39

16
4

52

15
5

65

14
6

78

13
7

91

12
8

104

a. Complete the rest of the table and graph the demand, MR, ATC and MC curves in a single diagram.

b. If the market is perfectly competitive and produces where P=MC, what level of output will be pro​duced and what price will be charged? Show your result graphically.

c. If the market is taken over by a monopolist, what price and output maximizes the profit of the monop​olist? Calculate and show graphically, the profits of the monopo​list.

d. Calcu​late and show graphically the social welfare cost of the monopoly.