1) Suppose a monopolist faces a demand curve for its output of P = 300Q. This means that the marginal revenue curve of the monopolist is M R = 300 2Q. Assume that there are no xed costs, and the marginal cost of production is constant and equal to $40. [Re BB 444-453, Notes L27] 3.) Write down an expression for the monopolists prot, as a function of the quantity of output it produces. b) If the monopolist must charge the same price for all units of output that it sells (that is, if the monopolist is a single price monopolist), what level of output will maximise the monopolists prot? 1'What price will the monopolist charge? What is its level of prot? c) If this were a competitive market instead of a monopoly, what level of output would be produced and what price would be charged? \"What is the level of prot for rms if it were perfectly competitive? (1) Draw a diagram of demand, marginal revenue, and marginal cost that illustrates your answer to part 1)). From this work out consumer surplus and producer surplus. [Note: the area of a triangle is just 1/2 x base x height and of a rectangle is just base x height. You should know these om primary school!] e) Draw the same diagram but for your answer to c), the case of the competitive market. FYom this work out consumer surplus and producer surplus. How much deadweight loss is there from the monopoly? W'hy? 3) The New Zealand government has decided to privatise it's Antarctic base, Scott Base, to make it pay it's way rather than be a drain on the public purse. As a result, it has converted its base into a hotel, the Emperor Penguin Hotel. You are the only New Zealand firm selling vacation trips to the South Pole. You know only three customers are in the market (the government also converted the base into an oil-drilling platform and was surprised that not many people want to see oil or oil rigs). You offer two services, a round-trip airfare and a stay at the Emperor Penguin Hotel. It costs you $300 to host a traveler at the Emperor Penguin Hotel and $300 for the airfare. If you do not bundle the services, a customer might buy your airfare but not stay at the hotel. A customer could also travel to the South Pole in some other way [by private plane), but still stay at the Emperor Penguin. The customer has the following reservation prices for the services: Reservation Prices ($) Customer Airfare Hotel 1 10{]I 800 2 500 500 3 800 100 [Ra BB 516-521, Notes L28] 3.) If you do not bundle the hotel and airfare, what are the optimal prices for the airfare (PA) and the hotel (PH)? W'hat prots do you earn? Tutorials: Week 10 2 Due: 5pm Friday, Week 11 b) If you only sell the hotel and airfare in a bundle, what is the optimal price of the bundle (P3) and what prots do you earn? (3) Mixed bundling occurs when consumers are offered a choice between the purchasing the entire bundle or one of the separate parts of the bundle only. If you follow a strategy of mixed bundling, what are the optimal prices of the separate hotel, the separate airfare, and the bundle (PH, PA, and PB, respectively) and what prots do you earn