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23 Nov 2019

16. Suppose that a monopolistic seller offlux capacitors faces the inverse demand curve P = 40 ?0.5Q, and that the monopolist can produce flux capacitors ata constant marginal cost of $5. Suppose that the government imposesa price ceiling of $6. Which of the following statements is correctin regard to regulated versus unregulated monopoly.
A. The unregulated monopolist charges higher prices, has greaterproducer surplus, less consumer surplus, and less deadweight lossthan the monopolist with a price ceiling at $6.
B. An unregulated monopolist charges higher prices, has greaterproducer surplus, less consumer surplus, and more deadweight lossthan the monopolist with a price ceiling at $6.
C. An unregulated monopolist charges higher prices, has greaterproducer surplus, more consumer surplus, and less deadweight lossthan the monopolist with a price ceiling at $6.
D. An unregulated monopolist charges higher prices, has greaterproducer surplus, more consumer surplus, and more deadweight lossthan the monopolist with a price ceiling at $6.

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Related questions

3. A monopolist has two sets of customers. The inverse demand for Group 1 is described by P1 = 200 - Q1. For Group 2, the inverse demand is P2 = 100- Q2. The monopolist faces ca constant marginal cost of 40. Let Q be the aggregate quantity demanded.

a. (10 points) Show that the monopolist's total demand if the two markets are treated as one is: Q=0; P =200

Q=200-P;100<P =200
Q=300-2P;0<P = 100
b. (10 points) Show that the monopolist's profit-maximizing price is P = 95 if both groups are to be charged the same price. At this price, how much is sold to members of Group 1 and how much

to members of Group 2? What is the consumer surplus of each group? What are the total profits?

4. Now suppose that the monopolist in problem #3 can separate the two groups and charge separate, profit-maximizing prices to each group.

a. (10 points) What will these prices be? What is consumer surplus? What are the total profits?
b. (10 points) If the total surplus is consumer surplus plus profit, how has price discrimination affected total surplus?

1) Taxing a monopoly (20 Points) Suppose that a monopolist sells a product to consumers with an aggregate demand that is downward sloping in quantity, D(Q) = 200 − 2Q. The total cost of producing Q units is C(Q) = 20Q + 2Q2 .

a) Identify the unregulated equilibrium (P ∗ , Q∗ )

b) What are the consumer and producer surpluses (CS and PS) and total welfare (W) at this equilibrium?

c) Suppose that a specific tax of τ = 20 is imposed on each unit. i. What price-quantity pair (P 1 , Q1 ) would we expect? ii. What are CS, PS, tax revenue (T), and W? iii. What is deadweight loss?

d) Instead of a specific tax, an ad valorem tax, α = 16 is imposed i. What price-quantity pair (P 2 , Q2 ) would we expect? ii. What are CS, PS, T, and W? iii. What is deadweight loss?

e) Welfare distribution i. Which scenario results in the highest producer surplus? ii. Which scenario results in the greatest gains for consumers, assuming that all tax revenues are perfectly redistributed to consumers only.

Under a binding price ceiling, what does the change in consumer surplus represent?
A) The gain in surplus for those buyers who can still purchase the product at the lower price.
B) The loss in surplus for those buyers who previously purchased some units of the good at the higher price, but these units are no longer produced at the lower price.
C) The loss in surplus for those buyers who would like the purchase the excess demand created by the price ceiling policy.
D) Both A and B are correct.
E) Both A and C are correct.

When the market price is held above the competitive level, the deadweight loss is composed of:

A) producer surplus losses associated with units that used to be traded on the market but are no longer exchanged.

B) consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged.
C) producer and consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged.
D) There is no deadweight loss if the government uses a price floor policy to increase the price.

Compared to a tariff, an import quota, which restricts imports to the same amount as the tariff, will leave the country as a whole
A) worse off than a comparable tariff.
B) not as bad off as a comparable tariff.

C) about the same as a comparable tariff.

D) Any of the above can be true.

What is the welfare impact of a subsidy policy?
A) Producer surplus increases, consumer surplus declines, and total welfare declines.
B) Producer and consumer surplus increase, and these gains are larger than the government cost.

C) Producer and consumer surplus increase, and these gains are smaller than the government cost.

D) Producer surplus increases, consumer surplus declines, and total welfare increases due to the subsidy program.

Why is there a deadweight loss associated with subsidy payments?
A) There is no deadweight loss from a subsidy.
B) Quantity supplied is less than the equilibrium amount, so consumers and producers lose surplus value on those units that are no longer produced.
C) Quantity supplied exceeds the equilibrium amount, and consumer willingness to pay for these additional units is smaller than the marginal cost of producing them.
D) The subsidy payment does not distort quantities in the market, but the government cost exceeds consumer willingness to pay for the quantity demanded.

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