ECN 1A Study Guide - Midterm Guide: Deadweight Loss, Marginal Revenue, Marginal Cost
Document Summary
Practice questions for midterm 3: suppose that a monopolist has a marginal cost of , and a fixed cost of . Suppose also that the demand curve is given by q = 12 (p/2). The situation in this problem is summarized in the following diagram. 0: suppose that the government tries to extract some of the monopoly profits by a tax of per unit sold. Now for the monopolist, mc = 8, so q* = 4, p* = 16. Dwl = . 5x1x2 + 1*10= 11 (this will be explained thursday evening: suppose instead the government imposes a lump sum profits tax of . No change to consumer prices since mc the same. Children are lighter, so imply a lower marginal cost to airlines. Airlines are legally required to offer lower fares to children. Families with children typically have more elastic demand. Families with children are typically poorer than people without.
