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Because of a patent, Company Z has a monopoly on a new product, which it brands Uusi. Company Z is a profit-maximizing firm and is
Because of a patent, Company Z has a monopoly on a new product, which it brands Uusi. Company Z is a profit-maximizing firm and is earning positive economic profits in the short run.
- Draw a graph of Company Z's market for Uusi.
- Label the profit-maximizing price (Pm).
- Label the profit-maximizing quantity (Qm).
- Shade the area of deadweight loss.
- What would happen to Company Z's economic profits in the long run without government intervention?
- Assume that Pm = $10 and the average total cost at the profit-maximizing quantity is $5. If the firm is earning $600 in economic profit, how many units of Uusi is it producing?
- On your graph from part (a), label the allocatively efficient price (Pe) and quantity (Qe).
- Is Company Z producing in the elastic or inelastic range of its product's demand? Explain.
- Based on the information from part (d), what is the total revenue of Company Z?
- Assume that Company Z becomes able to perfectly price discriminate.
- What would happen to its output?
- What would happen to consumer surplus?
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