Full name: Ton Nu My Duyen

Class: E-BBA 11.1

Student code: 11191366

GROUP ASSIGNMENT PRESENTATION 8

Problem 1. The following table shows the demand & cost data for a monopolist
a. Complete the table
Quantit Price Total Marginal Total Average Marginal
y ($) revenue revenue cost ($) total cost cost ($)
($) ($) ($)
0 8.5 0 - 5 - -
1 8.0 8.0 8.0 9 9 4
2 7.5 15 7.0 11.5 5.75 2.5
3 7.0 21 6.0 12.5 25/6 ~ 4.17 1.0
4 6.5 26 5.0 13.5 3.375 1.0
5 6.0 30 4.0 14.0 2.8 0.5
6 5.5 33 3.0 16.0 8/3 ~ 2.67 2.0
7 5.0 35 2.0 20.0 20/7 ~ 2.86 4.0
8 4.5 36 1.0 25.0 3.125 5.0
9 4.0 36 0 32.0 3.56 7.0
10 3.5 35 -1 40.0 4 8.0

b. What quantity will the monopolist produce?

Monopolists will produce the at the quantity such that marginal revenue (MR)
equals marginal cost (MC). So MR = MC at Q* = 6
c. What price will the monopolist charge?
The monopolist charge depends on Q*  We have P = 5.5 at Q* = 6
d. What will the profit be at this price?
At Q* = 6, P* = 5,5 and ATC* = 2,67
=> Pmax = Q* × (P* - ATC*) = 6 × (5.5 – 2.67) = 17
So the profit at this price will be 17$
Problem 2: A firm has demand function of P=100-Q ($) and total cost
function of TC=500+ 4Q+Q2 ($).
a. Is this firm a perfect competitive firm? Why? P
No, this firm is not a perfect competitive.
P=100-Q
because we have TR= P.Q= (100-Q).Q
 TR = 100 Q - Q2=> MR = TR’ =100 - 2Q P=100-2Q
=> D: P =100-Q and MR: P = 100-2Q & MR<P
This firm is monopoly, not a perfect competitive
MR D
firm Q

b. What is price and quantity to maximize total revenue ? What is that maximum
total revenue?
We have TR = 100 Q - Q2
TRmax when TR’ = 0 100 – 2Q = 0  Q = 50
When Q=50 => TR = 100 × 50 - 502 = 2500
and P = 100 – Q = 100 – 50 = 50
c. What is price and optimal quantity to maximize profit? What is that
maximum total profit ?
D: P = 100 – Q ,MR: P = 100 - 2Q
+ We have TC = 500 + 4Q + Q2 and MC = (TC)’ => MC= 4 + 2Q
To maximize profit marginal revenue equals to marginal cost:
 MC=MR => 4 + 2Q = 100 – 2Q => Q*=24

+ P=100 – Q => P* = 100 – 24 =76

We have max = TR*-TC* = (100 × 24 – 242) – (500 + 4×24 + 242) = 652
So max= 652
d. Asume government imposes a tax of 8 $ per unit of good sold, what is price
and optimal quantity that gives the firm maximum profit? What is this
maximum profit?

If the government imposes a tax of 8$ on profit of a monopolist then the fixed

cost of the monopoly firm will go up since this type of tax is like a fixed cost.

+ We have, TC + 8Q = (500+ 4Q+Q2) + 8Q

 TCnew = 500 + 12Q + Q2
+ MCnew = (TCnew)’ = 12 + 2Q
To maximize profit marginal revenue equals to marginal cost:
 MCnew = MR => 12 + 2Q = 100 - 2Q => Q*=22

+ P=100 – Q => P* = 100 – 22 =78

We have max = TR*-TC* = (100 × 22 – 222) – (500 + 12×22 + 222) = 468
So max= 468
e. Asume government imposes a fixed tax of 100 $, what is price and optimal
quantity that gives the firm maximum profit?

If the government imposes a tax of 100$ on profit of a monopolist then the fixed
cost of the monopoly firm will go up.

+ We have, TC + 100Q = (500+ 4Q+Q2) + 100

 TCnew = 600 + 4Q + Q2
+ MCnew = (TCnew)’ = 4 + 2Q
To maximize profit marginal revenue equals to marginal cost:
 MCnew = MR => 4 + 2Q = 100 - 2Q => Q*=24

+ P=100 – Q => P* = 100 – 24 =76

We have max = TR*-TC* = (100 × 24 – 242) – (600 + 4×24 + 242) = 552
So max= 552
Problem 3: A monopoly has a demand function of P=15-Q ($) and total cost
function of TC= 7Q ($)
a. What is price and optimal quantity that gives the firm maximum profit? Using
Lerner indicator (L) to identify market power of this firm?
+ We have TR = P×Q = (15-Q) × Q = - Q2 + 15Q
MR = dTR/ dQ = TR’ = -2Q + 15

+ We have MC = ΔTC/ΔQ = TC’(Q) = 7

The firm profit maximization occurs when the slope of total revenue equals to
the slope of the marginal cost or marginal revenue equals to marginal cost: MR
= MC  -2Q + 15 = 7

 Q* = 4 => P* = 11

+ Using Lerner indicator (L), we got the market power of this firm:

P−MC 11−7
L= P
= 11
= 4/11

 So , the price and optimal quantity that give firm profit maximization are
P*=11, Q*=4 and the market power of that firm is about 0,37

b. What is price and optimal quantity for society (for perfect competitive
market)? Identify dead-weight loss (DL) created by this firm?

DWL
A
P*=11
E B MC=7
P=7

Q*=4 Q1=8
We have competitive market point is the intersection of the demand curve and
the marginal cost curve .
So: MC=7=15-Q => Q=8 at P=7
1 1
The DWL equals to area of ABE so DWL = SABE= 2 AE.BE= 2 .4.4=8$

So, the price and optimal quantity for society are P=7, Q=8 and the dead-
weight lost is 8$

Problem 4: A monopolist has demand function of P= 100-Q and cost

functions of AVC= Q+4; FC=200
a. What is optimal output level that maximizes profit? What is that maximum
profit?
+ We have TR = P×Q = (100-Q) × Q = - Q2 + 100Q
MR = dTR/ dQ = TR’ = -2Q + 100

VC = AVC × Q = Q2 + 4Q

TC = FC + VC = Q2 + 4Q + 200

+ We have MC = ΔTC/ΔQ = TC’(Q) = 2Q + 4

The firm profit maximization occurs when the slope of total revenue equals to
the slope of the marginal cost or marginal revenue equals to marginal cost: MR
= MC  -2Q+100 = 2Q + 4

 Q* = 24

+ The maximum profit is: Pmax = TR(24) – TC(24) = - 242 + 100×24 – (242 + 4×24
+ 200) = 952

So, Pmax = 952

b. What is consumer surplus (CS) and deadweight loss (DL) created by this
firm? P

MC
CS
100 ATC

76
DL

52
Q
24 32MR Demand

+ The price at 24 units is P(24) = 100 – 24 = 76

1
CS (the red right triangle) = 2 × (100 – 76) × (24 – 0) = 288

+ P = MC 100 – Q = 2Q +4  Q = 32

1
DL (the black triangle) = 2 × (76 – 52) × (32 – 24) = 96
c. Assume this firm applies perfect price discrimination, what is quantity and
variable profit of the firm?

P
MC
ATC
I = 100

A
P* = 76
H B
P1 = 68

E
MC* = 52

C=4
MR D

Q*= 24 Q1 = 32 100 Q

This firm applies perfect price discrimination, the monopolist set all of the price
level on the demand curve.
That expands the output from Q* to Q1.
So, by perfect price discrimination, firm increases profit by taking all CS and
DWL.
→ The variable profit of the firm (PS) is IBC instead of P*AEC like before.

d, Identify relationship between variable profit (PS) that the firm gets before and
after applying perfect price discrimination and consumer surplus and
deadweight loss?
Because the price discrimination is the practice of selling a good at different
prices to different consumers (or different quantity) to take consumer surplus
and DWL.
We also can see on the graph that:
PSa = PSb + CS + DWL

P
MC
ATC
I

A
P*
H B
P1

E
MC*

C
MR D

Q* Q1 Q