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Math Help - Microeconomics- Profit maximisation

  1. #1
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    Post Microeconomics- Profit maximisation

    Hi
    I have an exam this thursday and was wondering if anyone can help me on the following question.
    Your help is greatly appreciated.
    Thank you!

    Firm A has a monopoly in the local market. The demand is:
    (1) QD
    = 100- 2P --> P = 50- 1/2Q

    The resulting marginal revenue function is MR(Q)= 50-Q

    The firm's marginal cost of production is MC(Q)= 5+1/2Q
    .


    a) Calculate the firm's profit maximizing output.
    b) What are the social costs of monopoly power? Calculate the social cost
    of the firm's monopoly power.
    .
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  2. #2
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    I can answer Part A, part B not sure, kinda 4got the social cost from my micro class long time ago.

    for part A,
    profit maximizing requires MR = MC, ( golden rules in microecon field )
    so 50-Q = 5+1/2Q

    so Q = 30
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  3. #3
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    Okay, now I recall, the social cost of monopoly is the deadweight loss, it's a comparison of state between 2 price setting, 1 is P = MC, which happens under competitive market, which usually means lower price and more quantity of goods: the other MR = MC, which usually means higher price and fewer goods.

    so you must 1st draw out the curve, price curve, MR curve and MC curve. then you compute the total revenue area of both price setting P = MC and MR = MC, after computing the difference between this 2 area, you'll get the social cost value.
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