question archive In Merageville, a monopolist has taken over the gasoline market! The demand curve remains the same as before: if the price of gasoline is zero, daily quantity demanded is 1000 gallons
In Merageville, a monopolist has taken over the gasoline market! The demand curve remains the same as before: if the price of gasoline is zero, daily quantity demanded is 1000 gallons
Subject:EconomicsPrice:9.82 Bought3
In Merageville, a monopolist has taken over the gasoline market! The demand curve remains the same as before: if the price of gasoline is zero, daily quantity demanded is 1000 gallons. For every increase in price of 10 cents, daily quantity demanded drops by 10 gallons. 1. Compute the marginal revenue curve as quantity increases by every 100 gallons, and sketch out this line on a graph, along with the demand curve. The marginal cost curve for this monopolist is the same as the old supply curve: At a price of zero, marginal cost is zero, but for every increase in quantity of 15 gallons, marginal cost increases by 10 cents. 2 Sketch out this marginal cost curve on the same graph. 3 Find the quantity at which marginal revenue equals marginal cost. 4 What price will the monopolist charge? 5. What is the transfer from consumers to the producer? 6 What is the deadweight loss to consumers? 7 What is the deadweight loss to the monopolist? 8 Confirm that, despite the deadweight loss, the monopolist likes being a monopolist.
Purchase A New Answer
Custom new solution created by our subject matter experts
GET A QUOTE
Answer Preview
Demand curve: Q=1000-100P
Inverse demand:
100P=1000-Q
P=10-0.01Q
TR=P*Q=(10-0.01Q)Q
=10Q-0.01Q2
1. MR=dTR/dQ=10-1/50Q (find respective MR curve as sketched on the graph)
2. MC=1/150Q( (find respective MC curve as sketched on the graph)
3. Where MR=MC:
10-1/50Q =1/150Q
10=1/150Q+1/50Q
10=2/75Q
Q=10*75/2
=375
4. Monopolist price (P)=10-0.01(375)
=$6.25
5. Transfer from consumer to producer(area A)=$(6.25-2.5)*375=$1406.25
6. Deadweight loss to consumers (area B)=1/2*$(6.25-4)*(600-375)
=1/2*$2.25*225
=$253.125
7. Deadweight loss to the monopolist (area C)=1/2*$(4-2.5)*(600-375)
=1/2*$1.5*225
=$168.75
8.
Competitive producer surplus=1/2*$4*600=$1200
Monopolist producer surplus=1/2*$[6.25+(6.25-2.5)]*375=$1875
Therefore, since the monopolist producer surplus is higher than the competitive one, despite the deadweight loss, the monopolist likes being a monopolist.
please see the attached file for explaination
