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QUESTION 1 Assume that a monopolist sells a product with a total cost function: 1,200 + 0.5Q2. The market demand curve is given by the equation: For what range of output will the firm's revenue be increasing? O < Q < 150 v Q: 100 150 For this monopolist, the profit-maximizing price is $200 At this price, the monopoly will earn profit equal to $13,800 v , at which it will sell If this market were supplied by many firms with the same cost function, how much would be produced? v units of output. At what price would it be sold? $150 Calculate the loss in efficiency in this market due to the monopoly. QUESTION 2 A monopolist has set her level Of output to maximize profit. The firm's marginal revenue is $20, and the price elasticity Of demand is -2.0. The firm's profit maximizing price is approximately v . The Lemer index Of monopoly power is 1 40 In a perfectly competitive market, the Lemer index is O QUESTION 3 Consider a monopolist facing a downward-sloping demand curve. Marginal revenue is located Compared to a competitive market, a mQnQpQlisLsells a lower If, at the current level Of output, a monopolist determines that the elasticity Of demand is -O. 15, then the monopolist will earn more money by decreasing output Compared to a competitive market, a monopsonistbuysa lower 150 '50 <0 < 300 Q 300 Q ISO '300 120.000 s 'SOOO "1800 s 10.000 saaao SS.OOO '2,600 S' 000 0.5 2 20 40 Other below v quantity at a higher v quantity at a lower demand. v price. pnce. below equal to higher keeping Output the same, but increasing price increasing output decreasing output QUESTION 4 Consider the following figure: monopsony.PDF price (S per unit output) 01 02 03 ME 04 S=AE Output A monopsonist will charge P5 v and purchase Q4 v units. In a perfectly competitive market, the equilibrium price would be P4 v and the equilibrium quantity would be