Question
1. (15 points) The market demand curve facing a one-price monopolist is given by p = 10, 000 0.25y. The cost function of the monopolist
1. (15 points) The market demand curve facing a one-price monopolist is given by p = 10, 000 0.25y. The cost function of the monopolist is given by: C(y) = 11y. (a) (3 points) Find the total revenue (TR), average revenue (AR) and marginal revenue functions of the monopolist. (b) (4 points) Find the profit-maximizing output of the monopolist and the price charged for it. (c) (2 points) What is the monopolist's profit in equilibrium? (d) (6 points) Draw the equilibrium you have derived in parts (a) - (c). Clearly label the AR, MR and MC curves. Clearly label the profit maximizing output, price and profit.
2. (10 points) Now consider a perfectly price-discriminating monopolist facing the same demand curve (p = 10, 0000.25y), and with the same costs (C(y) = 11y) as in question 1 above. (a) (4 points) Find the profit-maximizing output of the price-discriminating monopolist. What price/s will this monopolist charge their customers? (b) (4 points) Draw the equilibrium you have derived in part (a). Clearly label the MR and MC curves. Clearly label the profit maximizing output and profit. (c) (2 points) What is the value of the profit made by the price-discriminating monopolist?
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