Suppose Globe practices first-degree price discrimination and is faced with the following demand and marginal cost functions: Q = 6000-100P P = 65 – 0.01Q MC = 6.68 + 0.0068Q (a) Compute for Globe’s consumer surplus and producer surplus. (b) Does the social welfare improve because of Globe’s strategy of first-degree price discriminating? Explain intuitively and show graphically.
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Topic: Pricing with Market Power
Instructions: Show complete computations and label all graphs properly/accurately.
(2) Suppose Globe practices first-degree
marginal cost functions:
Q = 6000-100P
P = 65 – 0.01Q
MC = 6.68 + 0.0068Q
(a) Compute for Globe’s
(b) Does the social welfare improve because of Globe’s strategy of first-degree price discriminating?
Explain intuitively and show graphically.
Step by step
Solved in 3 steps with 2 images
- 8. A monopolist with cost function c(q) = q faces two consumers whose demand functions are given below. Q₁ = 100-P 50-P Q₂ (a) Suppose the monopolist is a uniform pricing firm (i.e.the monopolist can- not engage in any price discrimination). Find the firm's optimal pricing strategy. Calculate the firm's Lerner index. (b) What is the deadweight loss associated with this pricing strategy, if any? (c) Now, assume that price discrimination is possible. Find the monopolist's optimal second degree price-discrimination strategy. (d) Find the monopolist's optimal third degree price-discrimination strategy.You are the manager of a monopoly, and your analysts have estimated your demand and cost functionsas P = 300 − 3Q and C(Q) = 2, 000 + 2Q2, respectively.(a) What price-quantity combination maximizes your firm’s profits?(b) Calculate the maximum profits.(c) Is demand elastic, inelastic, or unit elastic at the profit maximizing price-quantity combination?(d) What price-quantity combination maximizes revenue?(e) Calculate the maximum revenues.(f) Is demand elastic, inelastic, or unit elastic at the revenue maximizing price-quantity combination?(a) Draw a correctly labeled graph for a single-price monopoly and show the profit-maximizing quantity, labeled Q1. (b) Assume the monopoly now engages in perfect price discrimination. On your graph in part (a), show the profit-maximizing quantity for the price-discriminating monopoly, labeled Q2. (c) Based on your answer in part (b), what will happen to the consumer surplus? Explain. (d) Is the output produced by the perfectly price-discriminating monopolist allocatively efficient? Explain.
- You are a consultant who is advising a monopoly on the optimal pricing strategy. Your analysis has yielded the following information. • The marginal cost (MC) is $3. • The demand equation is P = 90 - 3Q . The total cost (TC) is given by 35+ 3Q The marginal revenue (MR) is given by 90 - 6Q Based on this information, answer the following questions. Show FULL calculations! (a) Following the concepts of profit maximization, what is the profit maximizing quantity for this monopoly? (b) Following the concepts of profit maximization, what is the profit maximizing price for this monopoly? (c) Following the concepts of profit maximization, what is the monopoly's profit at the profit maximization point?Assume that Gas & Minerals is the only copper mining firm in Chile. The national demand for copper in thousands of tonnes per month is: q^d(p) = 15 - pThe total costs in millions of dollars are: c(q) = 5q(a) What would be the profit-maximising level of production for this firm? Determine the monopoly price and quantify the profits. Graph the demand, marginal revenue and marginal cost, identifying their values along with determining the social loss generated and identifying it in the graph above. Assume now that due to a bad internal restructuring, the operations manager was fired and a professional with little mining experience was hired. The new manager does not know environmental protocol and mining waste (tailings) has gotten out of control and has been dumped into a river. This generated a negative externality on copper production. The estimated damage is US$5 million per 1,000 tonnes.(b) Obtain the social marginal cost of this mining activity.(c) What level of production will…(c) Describe Price Discrimination? Explain whether Price discrimination is possible in a perfectly competitive market.
- Question 1 The demand functions for a firm's domestic and foreign markets are: P₁ = 390 - 6Q1 P2 = 200-5Q2 and the total cost function is TC = 130 + 10Q, where Q = Q1 + Q₂. Determine the price needed to maximize profit without price discrimination and the quantities at the maximum profit point. Note: Explore in the book the differences between the scenarios with and without price discrimination. P = Blank 1 Q1 = Blank 2 Q2 = Blank 3 Note: do not round until the final answer. Then round to the nearest integer. Blank 1 Blank 2 Blank 3 Add your answer Add your answer Add your answerSuppose inverse demand is given by the following equation: P(Q) = 600 - 20Q Suppose further that you are a monopolist with constant marginal cost equal to 40. How much profit do you earn at the optimal price and quantity? A) 3920 B) 1120 C) 0 D) 45002. Acme Pharmaceutical Company discovers a vaccine that prevents the common cold and has a patent that grants it a monopoly on this drug. Acme has plants in both the North America and Europe and can manufacture the drug on either continent at a marginal cost of $10. Assume there are no fixed costs. In Europe, the demand for the drug is QE = 70 - PE, where QE is the quantity demanded when the price in Europe is PE. In North America the demand for the drug is QN 110 PN, where QN is the quantity demanded when the price in North America is PN =
- a) A Dutch Brewing company produces Heineken beer, assume further that the marginal cost of producing a six pack of Heineken Beer is $6. Dutch Brewing company sells Heineken in two different Markets namely Africa and Europe whose inverse demand functions are ?? = 24 − ??and ?? = 12 − 0.5?? respectively.Requireda) Calculate the profit maximising Price-Quantity combinations in these two markets Africa and Europe.b) With this Pricing strategy calculate the profit. c) If competitive output (P=MC=6) for Africa is 18 and Europe is 12, Compute the deadweight losses in the two markets. d) Clearly illustrates that the third degree price discrimination is welfare improving over a single price policy. e) Suppose these markets were no longer separated. How would you construct the market demand in this situation? Would the monopolist’s profit-maximizing single price still be 15?Exercise 4.2 "With respect to the monopoly equilibrium without price discrimination, first-degree price discrimination increases the profit of the enterprise at the expense of reducing social welfare." Do you agree with this statement? Reason your answer and represent graphically.Monopoly Note: You can, but don't have to provide your calculations below (digitally in the text field below!). In any case, please provide your solutions! a) Explain the difference between the behaviour of a monopolist and a firm in competition. (5P) b) A monopolist has the cost function C(Q)=10Q+1. Let market demand be given by Qp=400- 10p. i) What is the profit-maximising quantity of output? (3P) ii) What is the equilibrium price? (3P) iii) Calculate the average cost. Compare the average cost and marginal cost and discuss whether many small firms could also compete fully in this market with the above cost function. (4P)