Discussion:
1) A monopolist faces the following demand curve P=222-2Q. The monopolist's cost is given by C=2Q.
(a) Calculate the profit-maximizing quantity and the corresponding price. What is the resulting profit/loss. Calculate the monopolist's markup.
(b) Calculate the profit-maximizing quantity and the corresponding price if this firm were competitive and charged marginal-cost-prices? What is the resulting profit/loss. Calculate the firm's markup.
(c) Compare the results to (a) and (b) and calculate the deadweight loss caused by the monopoly.
2) A monopsonic Fast Food Chain exhibits a demand for labor given byw=210-3L, wherewdenotes the wage andLthe quantity of labor hired. Workers' labor supply is given byw=2L+7.
(a) Calculate the profit maximizing labor demand and the resulting wage paid for the monopsonistic firm.
(b) Calculate the welfare loss compared to the competitive outcome.
3) Refer to the monopsony question above (Question 2). If the government imposed a minimum wage ofw=70,what would be the resulting quantity of labor employed, the wage, and the welfare loss. Also, calculate the change in welfare compared to the free market outcome
(i.e., in the absence of minimum wages). Is this a welfare gain or a loss?