Question 2 demand is given by FacebootsTM is a monopolist in the local market of boots. The market =a-bP where a > 0 and b > 0, and P and Q are the market price and quantity of boots, respectively. The cost of producing Q units is C(Q) = Q². (a) Find the profit-maximising price and quantity, AND compute the monopolistic profit for Faceboots™ (b) Verify that FacebootsTM price influence, i.e., monopoly power, depends only on the value b, but not on the value a. (c) If instead FacebootsTM cannot set and/or influence the market price at all, what quantity would be produced and what price would occur? (d) Draw the demand curve and label the intercept values in terms of a and b. Next, assume that b = 0.5. Using the slope of the ray from the origin, determine whether the demand curve, at the quantity that you found in part (c), is elastic, inelastic, perfectly elastic, perfectly inelastic, or unit elastic. DO NOT compute the price elasticity of demand. Suppose that FacebootsTM will be charged a tax of $t per unit. Compute the profit-maximising quantity with this tax. Write the difference between this quantity and the quantity that you found in part (a), as a function of t and b. (e)

Question 2 demand is given by FacebootsTM is a monopolist in the local market of boots. The market =a-bP where a > 0 and b > 0, and P and Q are the market price and quantity of boots, respectively. The cost of producing Q units is C(Q) = Q². (a) Find the profit-maximising price and quantity, AND compute the monopolistic profit for Faceboots™ (b) Verify that FacebootsTM price influence, i.e., monopoly power, depends only on the value b, but not on the value a. (c) If instead FacebootsTM cannot set and/or influence the market price at all, what quantity would be produced and what price would occur? (d) Draw the demand curve and label the intercept values in terms of a and b. Next, assume that b = 0.5. Using the slope of the ray from the origin, determine whether the demand curve, at the quantity that you found in part (c), is elastic, inelastic, perfectly elastic, perfectly inelastic, or unit elastic. DO NOT compute the price elasticity of demand. Suppose that FacebootsTM will be charged a tax of $t per unit. Compute the profit-maximising quantity with this tax. Write the difference between this quantity and the quantity that you found in part (a), as a function of t and b. (e)

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter14: Monopoly

Section: Chapter Questions

Problem 14.1P

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