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Monopoly Pricing and Output

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Shelley works at University florist in Minneapolis. Every Friday night, the owner of the florist shop gives her the unsold inventory of roses at no cost, which Shelley then sells on Riverside Avenue to pedestrians and motorists. Shelley has a monopoly on rose sales in this area, and faces a demand curve given by (see attachment) where p represents the price in dollars of a dozen roses and qd represents quantity demanded in dozens. For example, at a price of $10 per dozen roses, a quantity 30 dozen roses will be demanded.

NOTE: The following formula may be used for the problem: (see attachment)

Question 3.1 Calculate the price Shelley should charge as a profit-maximizing monopolist, the equilibrium quantity she will sell, and her profits.

Question 3.2 At the profit-maximizing price and quantity, calculate the price elasticity of demand for roses. Is Shelley pricing on the inelastic portion of the demand curve? Explain why or why not.

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Calvins's Barber Shops, Inc., has a monopoly on barbershop services provided in the south side of Chicago because of restrictive licensing requirements, and not because of superior operating efficiency. As as monopoly, Calvin's provides all industry output.. For simplicity, assume that Calvins's operates a chain of barbershops and the each shop has an average cost-minimizing activity level of 750 haircuts per week, with Marginal Cost= Average Total Cost= $20 per haircut.

Assume that demand and marginal revenue curves for haircuts in the south side of chicago market are:


where P is price per unit, MR is marginal revenue, and Q is total firm output (haircuts).

A. Calculate the monopoly profit-maximizing price-output combination, and the competitive market long-run equilibrium activity level.

B. Calculate monopoly profits, and discusses the "monopoly problem" from a social perspective in this instance.

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