Fill This Form To Receive Instant Help

Help in Homework
trustpilot ratings
google ratings


Homework answers / question archive / Consider a two-product (i ∈ {1, 2}) monopolist that knows the market demand functions that it faces and also knows its own cost structure

Consider a two-product (i ∈ {1, 2}) monopolist that knows the market demand functions that it faces and also knows its own cost structure

Economics

Consider a two-product (i ∈ {1, 2}) monopolist that knows the market

demand functions that it faces and also knows its own cost structure.


The market demand function for commodity one is Q1 = 1 − P1, and the market demand function for commodity two is
Q2 = 1 − 0.5 P2.


The monopolist has no variable costs of production, no commodity-specific fixed costs of production, no common fixed costs of production, and no commodity-specific sunk costs of production. It has a common sunk cost of production that is equal to $0.72. Price discrimination is not possible in the markets for either of the two commodities that the monopolist produces, but a price for commodity one that is different than the price for commodity two can be sustained.


1. Assuming that the monopolist wants to maximise its profits, find the prices that will be charged, and quantities that will be produced, by the monopolist if it is not regulated. You should derive as many of the results that you use when answering this question as possible.


2. What are the total consumer surplus, producer surplus, economic profit, and total economic surplus that result from the behaviour of an unregulated monopoly?1 You should derive as many of the results that you use when answering this question as possible.


3. The regulator decides to impose Ramsey-Boiteux pricing on this monopolist, with the minimum level of economic profit that is employed when calculating the RamseyBoiteux prices being zero. What are the Ramsey-Boiteux prices and associated quantities that will result from this form of regulation? You should derive as many of the results that you use when answering this question as possible.


4. What are the consumer surplus, producer surplus, economic profit, and total surplus that result from the imposition of Ramsey-Boiteux pricing by the regulator? You should derive as many of the results that you use when answering this question as possible.


5. Economists normally recommend that sunk costs should be ignored when making decisions. Should a regulator ever pay attention to a monopolist's sunk costs (from a public interest, or social welfare, perspective)? Justify your answer.

Purchase A New Answer

Custom new solution created by our subject matter experts

GET A QUOTE