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Homework answers / question archive / Serena is a single-price, profit-maximizing monopolist who sells her own patented perfume (shown in the graph below)
Serena is a single-price, profit-maximizing monopolist who sells her own patented perfume (shown in the graph below). What is the equilibrium price and quantity under monopoly conditions? b. If instead Serena had to operate like a competitive firm, what would be the equilibrium price and quantity? What is the deadweight loss and total loss to consumer surplus when Serena operates as a monopoly? d. How much surplus would Serena have if she could act as a perfectly price- discriminating monopolist? c. 60 MC 50 45 40 1 1 1 1 1 1 1 $ per ounce 1 1 30 1 20 15 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 10 1 1 1 MR 1 D 24 O 4 6 8 12 16 Ounces/day
Question 3
(a)
A single price monopolist maximizes profit when it produce that level of output corresponding to which MR curve inctersects MC curve.
The MR curve is intersecting the MC curve corresponding to output of 8 ounces per day.
The price corresponding to output of 8 ounces/day is $40 per ounce.
Thus,
The equilibrium price under monopoly conditions is $40 per ounce.
The equilibrium quantity under monopoly conditions is 8 ounces per day.
(b)
A competitive firm maximizes profit when it produce that level of output corresponding to which MC curve intersects demand curve.
The MC curve is intersecting the demand curve corresponding to output of 12 ounces per day.
The price corresponding to 12 ounces per day is $30 per ounce.
Thus,
The equilibrium price is $30 per ounce.
The equilibrium quantity is 12 ounces per day.
(c)
Calculate the deadweight loss -
DWL = 1/2 * [Monopoly price - Price corresponding to intersection of MR and MC curve] * [Competitive quantity - Monopoly quantity]
DWL = 1/2 * [$40 - $20] * [12 - 8]
DWL = 1/2 * $20 * 4 = $40
Thus,
The deadweight loss when Serena operates as a monopoly.
Calculate the consumer surplus under monopoly -
CS = 1/2 * [Y-intercept of demand curve - Monopoly price] * Monopoly quantity
CS = 1/2 * [$60 - $40] * 8 = 1/2 * $20 * 8 = $80
The consumer surplus under monopoly is $80.
Calculate the consumer surplus under perfect competition -
CS = 1/2 * [Y- intercept of demand curve - Competitive price] * COompetitive quantity
CS = 1/2 * [$60 - $30] * 12
CS = $180
The consumer surplus under perfect competition is $180.
Calculate the total loss of consumer surplus -
Total loss of consumer surplus = Consumer surplus under perfect competition - Consumer surplus under monopoly = $180 - $80 = $100
Thus,
The total loss of consumer surplus when Serena operates as a monopoly is $100.
(d)
Calculate total surplus when Serena acts as a perfectly price disriminating monopolist -
Total surplus = 1/2 * [Y-intercept of demand curve - Y-intercept of MC curve ] * Competitive quantity
Total surplus = 1/2 * [$60 - $0] * 12
Total surplus = $360
Thus,
The surplus that Serena would have if she could act as a perfectly price discriminating monopolist is $360.
