ECON 301 Lecture Notes - Lecture 21: Social Cost, Deadweight Loss, Marginal Revenue

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10 Apr 2016

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Marginal revenue = marginal cost at maximum proit. Express quantity as a function of price. Invert: 4p = 50 - qd = 12. 5 0. 25 qd. The demand function is the same as average revenue. P(q) = 40 q, and cost = 50 + q2. 10* (30 15) = 10 * 15 = 150 (p-mc) / p = -1/ed (p-mc) / p is the markup of the price. If the demand is very elastic, the mark up would be small, so beneit for the monopolist would be small. Markup could be seen as a measurement for monopolist power. Because monopoly shifts quantity from the perfect market equilibrium, there will always be social costs. The social cost probably exceeds the deadweight loss. The larger the transfer surplus is from the consumers to the irms, the larger the social cost. Price regulation could eliminate deadweight loss in monopoly.

Related Questions

Assume company A is a monopoly with total cost function given as C(q) = 50357 +10q, with q representing quantity. Market inverse demand is given as P = 2450 -2q.

1) Solve for marginal revenue, marginal cost, and average cost curves.

2) Solve for P and Q at profit maximization and monopoly profit.

3) Assume now that company A is forced to charge an efficient price (perfect competition). Find price, quantity, and profits in this scenario.

periwinklemoose975

The average revenue (demand) for product Q is given by AR = 50 - Q and the total cost of Q by:

STC = 100-4Q+2Q^2

a. Find the price function and then the TR function. See Assignment 3 or 4 for an example. Hint: another name for price is average revenue (AR).

b. Write the MR and MC functions below. Remember: MR = dTR/dQ and MC = dSTC/dQ. See Assignment 5 for a review of derivatives.

c. What positive value of Q will maximize total profit? Remember, letting MR = MC signals the objective of total profit maximization. Solve MR = MC for Q. The value of Q you get should not be zero or negative.

d. Use the price function found in (a) to determine the price per unit that will need to be charged at the Q found in (c). This will be the price you should ask for the total profit maximizing quantity.

e. What total profit will result from selling the quantity found in (c) at the price found in (d)? Hint: the profit function is found as TR â STC.

orangemole416

A small firm faces an inverse demand function of P = 100 - Q. Its total cost function is given by TC = .5Q2. (You should see right away that marginal revenue is thus MR = 100 - 2Q, and it also happens that marginal cost is just MC = Q. Both MR and MC are the first derivatives of total revenue and total cost. And a quick comment on MC: unlike some marginal cost functions we've seen, this one is not constant, because marginal cost is getting $1 higher with each additional unit of output.)

The Chief Executive Officer will manage the firm, choosing output and price. Currently, the CEO is negotiating an incentive-based contract with the shareholders of the company.
(Hint: basing compensation on revenue will motivate revenue maximization rather than profit maximization!)

Hint: since the plan creates incentives for the CEO to maximize revenue rather than profit, you should not set MR = MC at this point. BIG hint: revenue is maximized when selling an additional unit won't increase your revenue, or in math terms, when MR = 0.)

Owners' proposal: CEO keeps 10% of TR.

Firm price:
Firm output:
Total revenue:
Firm profit:
CEO compensation:
Remaining profit for owners:

redfrog477

ECON 301 Lecture Notes - Lecture 21: Social Cost, Deadweight Loss, Marginal Revenue

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