Monopolist Exercises

1. A monopolists total revenue function is given by

TR(Q) = 100Q -

Q 2.

a. If the monopoly price is P = $60, TR = $ _______.

= _____.
b. At this price the elasticity of demand,
c. If this is the profit-maximizing price, marginal cost is MC = $ _____.

Suppose AVC is constant (AVC = MC) and the monopoly has TFC = $800.
d. Producer Surplus (Quasi-rent) is $ ______.
e. Profit is,

2. A monopoly has fixed costs TFC = $300 and employs a variable input L. Its
MC = $10 everywhere. At its profit-maximizing position, output Q = 50 and
price is 1.5 average total cost. Compute:
P = $ _____,

= ______ and

3. A monopoly with TC(Q) =
Q2 + 4Q + 10 faces market demand P(Q) = 20
Q.

a. Compute: MR(Q) = _____________, MC(Q) = __________.
and the profit maximizing values
P = $ _____, Q = _____,

= ______ and

b. An excise tax t = $4 per unitof Q is imposed. Derive the post-tax

TC(Q) = _____________,

TVC(Q) = ____________

ATC(Q) = ______________,

AVC(Q) = ____________,

MC(Q) =

____________

c. Compute the post-tax

P = $ _________. Excise tax payment, ETP = $ ______ and net profit

3. A monopolist with total costs faces a demand curve given by

TC(Q) =
Q2 + 4Q + 10 and P(Q) = 20
Q.
and

a. Compute the profit-maximizing P, Q, TR, TC,

b. An excise tax t = $4 per unit is imposed. Compute the post tax profit-maximizing P, Q, TR,
TC,

and excise tax payment ETP.

Solution:
a. MC = MR: 20 - Q = Q + 4, Q = 8, P = $16, TR =$128, TC = $74,

= $54,

= - 4.

b. TC =
Q2 + 8Q + 10
MC = Q + 8.
Q + 8 = 20 Q, Q = 6, P = $17.
TR = $102, TC $76,

= $26, ETP = $24,

1. a. TR(Q) = P(Q)Q = 100Q b.

= -5.6

Q2. Hence, P(Q) = 100 -

Q.

= - 1.5.

c. MC = MR = P(1 -

= 60(2/6) = $20.

d. Q = 80, P = $60, AVC = $20. Producer surplus is $40(80) = $3200.

e. TC = $2400,

= $2400.

2. ATC =

= $16. P = 1.5 ATC = $24.

= 24/14

= $1200 - $800 = $400.

$/Q

24

16

ATC

10

MC = AVC
D
MR

50

Qty