1. A monopolist firm faces the following cost curve: C(Q) = 10Q + 300, where Q is the output produced. The demand for its product is given by P = 50 - Q.
a) Find the equilibrium price and quantity.
b) What is the deadweight loss associated to the monopoly?
c) Draw a figure to illustrate your answer.
d) Suppose the government wants to regulate the monopoly. What price will maximize aggregate surplus in this market?
2. Inoculations create external benefits by reducing other people's exposure to communicable diseases. Suppose the market demand curve for inoculations is Qd = 100 - 10P. Suppose that the market for inoculations is perfectly competitive and that the market supply curve is Qs = 2P - 8. Finally, suppose that the marginal external benefit of inoculations is MEB = 8 - 0.5Q.
a) Find the socially efficient level of inoculations.
b) Find the competitive equilibrium.
c) Find the deadweight loss created by the externality.
d) Find the optimal subsidy.
e) Draw a figure to illustrate your answer.
a) Find the socially efficient level of inoculations.
b) Find the competitive equilibrium.
c) Find the deadweight loss created by the externality.
d) Find the optimal subsidy.
e) Draw a figure to illustrate your answer.