Consider a simplified version of the model of a public agency captured in Eq. (11.2). Suppose inverse demand for \(Q\) is given by \(D(Q)=10-Q\). Suppose the price of labor \((w)\) is 1 and production of \(Q\) is in direct proportion to the amount of labor used: \(Q=L\).

a. Write an expression for the budget (consumer surplus) as a function of \(Q\).

b. In a plot of \(Q\) versus \(P\), plot the budget constraint and sketch indifference curves for the agency head.

c. On the same figure, sketch the objective function for a profit-maximizing monopolist.

d. How do the results differ in terms of choice of \(Q\) between the profit-maximizing monopolist and the public agency?

e. For a given \(Q\), how would the choice of \(L\) differ between a profit-maximizing monopolist and the public agency?

Equation

Transcribed Image Text:

MaxQ.PLE U(Q,P) (11.2a)