Explore BrainMass
Share

Explore BrainMass

    Problems in market structures

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Discuss problems with market structures, oligopoly, monopoly etc.

    © BrainMass Inc. brainmass.com October 10, 2019, 1:57 am ad1c9bdddf
    https://brainmass.com/economics/output-and-costs/356440

    Attachments

    Solution Preview

    Please see the attached file. Thanks

    Consider a monopoly where the inverse demand for its product is given by P = 50 - 2Q. Total costs for this monopolist are estimated to be C(Q) = 100 + 2Q + Q2. At the profit maximizing combination of output and price, deadweight loss is
    A. $32
    B. $64
    C. $128
    D. Cannot be determined with the given information
    TR=P*Q=(50-2Q)*Q
    MR=dTR/dQ=50-4Q
    MC=dC(Q)/dQ=2+2Q
    For profit maximization, MR=MC so we have
    50-4Q=2+2Q
    Solving we get Q=8 and P=34
    Instead if the market is competitive, we have P=MC
    So 50-2Q=2+2Q, solving we get
    Q=12 and P=26
    MC when Q=8 is 2+2*8=18
    Deadweight Loss = 0.5*(34-26)*(12-8)+0.5*(26-18)*(12-8) = $32
    Answer: A $32

    Which of the following formulas correctly measures the profit of a monopoly?
    A. π = TR - TC
    B. π = (P - ATC)Q
    C. π = (P - AVC)Q
    D. π = TR - TC and π = (P-ATC)Q
    Answer: D π = TR - TC and π = (P-ATC)Q

    Which of the following are not price setting oligopoly models?
    A. Stackelberg
    B. Cournot
    C. Bertrand
    D. Stackelberg and Cournot
    Answer: D. Stackelberg and Cournot

    In a market where two firms compete by setting quantity, the Cournot equilibrium has which of the following characteristics?
    A. The two firms reaction functions intersect
    B. There is no incentive for the two firms to collude
    C. The two firms isoprofit curves intersect one ...

    Solution Summary

    Problems in market structures are summarized in this solution.

    $2.19