Question

1. In market Z, the demand given as: Q = 80 - 0.025P Total cost = fixed cost + variables cost (Q) = 100+20Q a) If the firm is operating in a perfectly competitive market, determine the price and quantity output set by the firm as to maximise profit. (5 marks) b) Supposed, the firm is a monopoly determine the price and quantity set by the firm as to maximise the profit. (5 marks) c) In a diagram, draw the perfectly competitive market and monopoly market from (a) and (b). (5 marks) d) Calculate the deadweight loss as the firm moves from a perfectly competitive market to monopoly from (c). (5 marks)

          1. In market Z, the demand given as:
  Q = 80 - 0.025P
  Total cost = fixed cost + variables cost (Q)
              = 100+20Q
 
a) If the firm is operating in a perfectly competitive market, determine the  
price and quantity output set by the firm as to maximise profit.
(5 marks)
 
b) Supposed, the firm is a monopoly determine the price and quantity set 
    by the firm as to maximise the profit.
(5 marks)

c) In a diagram, draw the perfectly competitive market and monopoly 
      market from (a) and (b).
  (5 marks)

d) Calculate the deadweight loss as the firm moves from a perfectly  
    competitive market to monopoly from (c).
(5 marks)

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Added by Leelawathy S.

Principles of Economics

Gregory Mankiw 8th Edition

Instant Answer

Solved by Expert Crystal Wang

06/18/2023

Step 1

Since the firm is a price taker, MR is equal to the market price (P). Show more…

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1. In market Z, the demand given as: Q = 80 - 0.025P Total cost = fixed cost + variables cost (Q) = 100+20Q a) If the firm is operating in a perfectly competitive market, determine the price and quantity output set by the firm as to maximise profit. (5 marks) b) Supposed, the firm is a monopoly determine the price and quantity set by the firm as to maximise the profit. (5 marks) c) In a diagram, draw the perfectly competitive market and monopoly market from (a) and (b). (5 marks) d) Calculate the deadweight loss as the firm moves from a perfectly competitive market to monopoly from (c). (5 marks)

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Transcript

00:01 So let's go over this question.

00:03 So let's draw the diagram for this first to help us visualize it.

00:16 This is our demand curve or marginal benefit and then we have our marginal cost and then we have a marginal revenue curve.

00:40 So first of all we're looking at the perfectly competitive market.

00:43 It's going to produce where marginal benefit is equal to marginal cost.

00:50 So this is going to be the equilibrium point we're looking for.

01:02 So we are given the cost function.

01:15 So what we need to do is we have to multiply this.

01:19 We have to multiply price by quantity to get our total cost.

01:23 So we're going to substitute in our cost function for p and then we'll get the total cost function.

01:39 Now from this we can get marginal cost.

01:41 This is the first derivative of total cost.

01:53 So marginal benefit is just our demand curve.

01:56 We need it to be the inverse demand curve.

01:59 So we're going to rearrange it for p in terms of q.

02:10 So now we're going to set these two equal.

03:46 So that's the quantity they will produce.

03:48 Now let's find the price that they will charge.

03:54 So we're just going to substitute in q to get the price.

04:25 So that's the price that will be charged...

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