Question 2:

Suppose that a single price monopolist's inverse demand curve is P = 350 - Q.

If the seventh digit of your Deakin student ID number is even (that is, it is either 0, 2, 4, 6 or 8), then Scenario A applies so that the monopolist's marginal cost curve is MC = 50 + 2Q.

If the seventh digit of your Deakin student ID number is odd (that is, it is either 1, 3, 5, 7 or 9), then Scenario B applies so

that the monopolist's marginal cost curve is MC = 40 + 3Q.

Based on the above information, answer the following questions:

(i)

What is the seventh digit of your student ID number and therefore which of the above scenarios apply to you? Based on this scenario,

answer all the parts below.

The seventh digit of my student ID number is 2.

(ii)

Diagrammatically represent the monopolist's demand, MR, and MC curves. Note: YOU MUST MAKE USE OF THE EQUATIONS WHEN DRAWING YOUR DIAGRAM AND APPROPRIATELY MARK THE LENGHTS OF RELEVANT INTERCEPTS.

(iii)

Calculate the monopolist's profit maximising price and quantity, and show them on your diagram for part (ii). Show your workings. Given the

information in the question, what assumption will you have to make to be able to calculate the monopolist's profit at this price and quantity? Under that assumption, show (on your diagram for part (ii)) and also calculate the profit the firm would make. Show your workings.

(iv)

Calculate the deadweight loss at the monopolist's profit maximising price and quantity and show it on your diagram for part (ii). Show your working.

(v)

Suppose that the government decides to impose a price ceiling of $240 to regulate the monopolist. Show this price ceiling on your diagram from

part (ii). Show and calculate the monopolist's chosen quantity after the imposition of the price ceiling and explain your answer. Will this price

ceiling eliminate deadweight loss? Explain your answer.