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1. A monopolist faces an inverse market demand P(Q) = 200 - 1 - 2Q and a marginal cost of MC(Q) = 20 + Q.

(a) What is the unregulated monopolist's optimal quantity?

(b) What would an appropriate regulatory instrument to bring this market back to efficiency?

(c) What would be the regulated quantity and price if this instrument were successfully implemented?

(d) What is the increase in welfare resulting from regulation?

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Kritika Krishnakumar
Kritika KrishnakumarLv10
28 Sep 2019

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Related questions

A monopolist faces an inverse market demand P(Q) = 200 - (1/2)Q and a marginal cost of MC(Q) = 20 + Q.

(a) What is the unregulated monopolist's optimal quantity?

(b) What would an appropriate regulatory instrument to bring this market back to efficiency?

(c) What would be the regulated quantity and price if this instrument were successfully implemented?

(d) What is the increase in welfare resulting from regulation?

A monopolist faces an inverse demand function of both quantity, Q, and advertising effort, A, P(Q, A) = 70 - Q + A1/2. The marginal cost of production is constant and 10, and the marginal cost of advertising is constant and 1.

(a) What is the monopolist's optimal choice of advertising and quantity?

(b) What is the monopolist's profit given this optimal choice?

(c) Find the optimal quantity given that advertising is equal to zero, A = 0.

(d) Find profit.

(e) Compare the profits from not advertising with the optimal advertising strategy.

Regulation under a monopoly:

The inverse demand for a product is P(Q) = 100 - (1/2)Q. Production is associated with a marginal private cost, MCP(Q) = Q, and a constant marginal external cost, MCE = 25.

(a) Graph inverse demand, marginal revenue, marginal private cost, and marginal social cost on a single graph. Label the axes.

(b) What is the unregulated equilibrium? (Define in terms of price and quantity.)

(c) What is the socially optimal price-quantity pair?

(d) What is the deadweight loss under an unregulated monopoly in this case?

(e) What should the regulator do?

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