Group 6 – EBBA 14.

3
GROUP ASSIGNMENT 9
Name of members Specific jobs
Đỗ Quế Anh Do 1a, ppt
Hoàng Nguyên Anh Do 1b
Nguyễn Phương Nhi Do 2c
Lê Thị Minh Ngọc Do 2a, b
Mai Hồng Giang Do 2d
 All team members did task invidually and then discussed, finished the whole tasks.

Problem 1:
a. To maximize the profit, MR=MC
+ TR = P.Q = (15-Q).Q = 15Q-Q^2
+ MR = TR’ = (15Q-Q^2)’ = 15-2Q
+ MC = TC’ = (7Q)’ = 7
 15-2Q = 7
 Q=4
 P = 15-4 = 11$
Market power of this firm by Lenner indicator:
L = (P-MC)/P = 11-7/11 = 0.37
b. For perfectly competitive market, to maximize the profit, MC = P
=> 15-Q = 7
=> Q = 8; P=7$

P*=11 A
P1=7 MC
B
E

MR Q

Q*=4 Q1=8

DWL = SAEB = (11-7).(8-4)/2 = 8$

Problem 2:
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?
- To maximize the profit, MR=MC
+ VC = AVC.Q = (Q+4).Q = Q^2+4Q
+ TC = VF+FC = Q^2+4Q+200
 MC = TC’ = 2Q+4
+ TR = P.Q = (100-Q).Q = 100Q-Q^2
 MR = TR’ = 100-2Q
So, MR=MC  100-2Q=2Q+4
 Q=24
 Profit max = TR -TC when Q=24; P=76$; Profit max = 100.24-24^2-(24^2+4.24+200) = 952$

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

A MC
P*=76
P1
B
E
MC*=52
D

C
MR Q

Q*=24 Q1

If this firm a perfect competitive, to maximize the profit, MC = P

 2Q+4 = 100-Q
 Q1=32
 P1=68
+ The consumer surplus = SIAP* = 24.(100-76)/2 = 288$
+ The DWL = SAEB = BE.AE/2 (32-24).(76-52)/2 = 96$

c. Assume this firm applies perfect price discrimination, what is quantity and variable profit of
the firm?
The firrm applies price perfect discrimination, which set all the price level on the demand curve when
expand output to Q1=32.
Variable profit = 32.68-1152 = 1024

d. Identify relationship between variable profit (PS) that the firm gets before and after
applying perfect price discrimination and consumer surplus and deadweight loss?
+ Before discrimination:
PS = P*AEC = (AE+CP*).AP*/2 1152$
CS = 288$
DWL= 96$
+ After discrimination:
Firm expanded output to Q1=32
We got new PS = 1024$, CS = 512$
So, by perfect price discrimination, firm increased profit by getting more CS and DWL.