Question
Consider the following supply and demand in a market with a monopolist: supply: P = 5 + 0.5Q demand: P = 20 - 2Q Answer
Consider the following supply and demand in a market with a monopolist:
supply: P = 5 + 0.5Q demand: P = 20 - 2Q
Answer each of the following showing all calculations and supporting graphs. 1. Can a government correct for this market imperfection using a quota? If so, solve for the size of the quota, and show how this is achieved using graphs. Who wins and who loses from this policy (i.e., how does surplus change)? 2. Can a government correct for this market imperfection using a Price Ceiling? If so, solve for the price ceiling of the quota, and show how this is achieved using graphs. Who wins and who loses from this policy (i.e., how does surplus change)? 3. Can a government correct for this market imperfection using a Price Floor? If so, solve for the size of the price floor, and show how this is achieved using graphs. Who wins and who loses from this policy (i.e., how does surplus change)?
Now suppose the monopolist faces a change to their production process that gives them the following supply curve. supply: P = 5 - 0.2Q + 0.01Q^2
1. How can price controls be used to achieve competitive equilibrium? 2. How will the market perform under this policy? 3. What price target should be used instead?
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