MICROeconomics - Monopoly

posted by .

Please check my answers and correct them.

Domestic Market:
Pd = 20 000 – 20yd
MRd = 20 000 – 40yd

Foreign Market:
Pf = 25 000 – 50yf
MRf = 25 000 – 100yf

Firm’s production process shows Constant Returns to Scale and it takes $1,000,000 to produce 100 computers.

-----------


a. Find LAC (y) and MC (y). What do the graphs look like?

LAC (y) 1,000,000/100 = 10,000
MC (y) = 0
LAC is a horizontal line at 10,000 and since MC = 0, they share the same line.


b. If the firm maximizes its profits, how many computers for how much would it sell in both the domestic and foreign markets?

Sell 100 computers (since P = min LAC) for $18,000 (Pd = 20000 – 20(100)) in the domestic market and $20,000 (Pf = 25000 – 50(100)) in the foreign market.


c. What is the price elasticity of demand for both markets? Is demand more or less elastic in the market where the higher price is charged?
EDd = -20(18 000/100) = -3 600
EDf = -50(25 000/100) = -12 500
If higher price is charged, the demand is less elastic.

d. Suppose that somebody figures out a wiring trick that allows the firm’s computer build for either market to be costlessly converted to work in the other (ignore transportation costs). Given that the costs haven’t changed, how many computers should the firm sell and at what price should it charge? How will the firm’s profits change now that it can no longer practice price discrimination?

I don’t understand this question.

  • MICROeconomics - Monopoly -

    a) I disagree with your MC. Constant returns to scale (and no fixed costs) implies AC=MC. So, I think MC=10000

    b) I disagree. Always Always Always, maximize by setting MC=MR. So, for the domestic 20000-40Yd = 10000. Solve for Yd. I get Yd=250.
    (As a check, plug 250 into the demand equation and then calculate total profits. Compare that to your answer of Yd=100.)

    Repeat for the Foreign market.

    c) I disagree. In the domestic market, Yd=250, P=15000. Using the demand equation, bump up P by a small amount, say 1%. What is the %change Yd? I get Yd' = 242.5, a change of 7.5. and 7.5/250 = .03 or a 3%change. So the Price elasticity for domestic is 1%/-3% = -.3333.

    Repeat for the foreign market.

    d) I was also confused until I read the last sentence. Assume the firm can no-longer price discriminate -- that the price in the domestic market must equal the price in the foreign market. So, lets build the combined demand equation. Graphing, it will have a kink. Graphing the equation will be helpful to think about the problem

    For prices above 20,000 it will sell only in the foreign market. At P=20000, Y=100. Draw a line starting at P=25000,Y=0 to P=20000, Y=100. Now then, at P=0 from the two demand equations, Yd=1000 and Yf=500, for a combined Y=1500. So draw a line from P=20000, Y=100 to P=0, Y=1500. The slope is 1400/-20000 = -14.2857. We have our demand curve. Extend this second piece back to the vertical axis. So, the relevant demand equation, I get, is P=21428 - 14.2857Y for Y>100.
    So, MR will be 21428 - 28.5714Y

    Set MC=MR and solve for Y.

Respond to this Question

First Name
School Subject
Your Answer

Similar Questions

  1. please check my answer

    please check my answer thanks :) You are the manager of The Candle Shop using the FIFO method of inventory pricing, what is the dollar value of the ending inventory if there were 17,000 units on hand Dec 31 Show all of your work Jan …
  2. Microeconomics

    Am I calculating the Marginal Revenue when you get the quantity for the price of $6,000.00?
  3. Microeconomics

    Is it correct that if the marginal cost in the following question is zero, then the total revenue and profit would be same?
  4. please help

    . If Healthy Foods has an annual interest expense of $10,000, calculate the degree of financial leverage at both 20,000 and 25,000 bags. 20,000 bags x $10 = 200,000 - $10,000 = 190,000 – 80,000 = 110,000 25,000 bags x $10 = 250,000 …
  5. Math

    What is the percent increase in the population for all six inhabited continents from 1950 - 2000?
  6. healthcare fiancare

    HINT: 6% X $1,000,000 – {20% X ($1,000,000 – (6% X $1,000,000))} = 6% X $1,000,000 – {20% X ($1,000,000 - $60,000))}= 6% X $1,000,000 - {20% X $940,000}= 6% X $1,000,000 - $188,000 = $60,000 - $ 188,000= -$128,000 A) The interst …
  7. microeconomics

    1. Market demand is given as QD = 250 – 0.5P. Market supply is given as QS = 2P. In a perfectly competitive equilibrium, what will be the value of consumer surplus?
  8. Math

    Would 72,060,964,765 look like the following in it's expanded form?
  9. math

    The data set represents the income levels of the members of a country club. Estimate the probability that a randomly selected member earns at least $98,000. 112,000 126,000 90,000 133,000 94,000 112,000 98,000 82,000 147,000 182,000 …
  10. statistics

    The data set represents the income levels of the members of a country club. Estimate the probability that a randomly selected member earns at least $98,000. 112,000 126,000 90,000 133,000 94,000 112,000 98,000 82,000 147,000 182,000 …

More Similar Questions