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Long run marginal cost of production

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Reference no: EM132283951

Suppose a monopolist faces the following demand curve: P = 750 - Q. If the long run marginal cost of production is constant and equal to $30.

a) What is the monopolist's profit maximizing level of output?

b) What price will the profit maximizing monopolist charge?

c) How much profit will the monopolist make if she maximizes her profit?

d) What would be the value of consumer surplus if the market were perfectly competitive?

e) What is the value of the deadweight loss when the market is a monopoly?

f) What is the value of the Lerner Index for this monopoly?

2. Suppose that two players are playing the following game. Player 1 can choose either Top or Bottom, and Player 2 can choose either Left or Right. The payoffs are given in the following table

Player 2

Player 1

Left

Right

Top

6           5

9             4

Bottom

7           4

5             3

where the number on the left is the payoff to Player A, and the number on the right is the payoff to Player B. 

A) Does player 1 have a dominant strategy, and if so what is it?

B) Does player 2 have a dominant strategy and if so what is it?

C) For each of the following strategy combinations, write TRUE if it is a Nash Equilibrium, and FALSE if it is not:

i) Top/Left

ii) Top/Right

iii) Bottom/Left

iv) Bottom Right

D) What is Player 1's maximin strategy?

E) What is player 2's maximin strategy?

F) If the game were played with Player 1 moving first and player 2 moving second, using the backward induction method discussed in the class notes, what strategy will each player choose?

3. Suppose a monopolist has a production function given by Q = L1/2K1/2. Therefore,

MPL = , and MPK =

The monopolist can purchase labor, L at a price w = 16, and capital, K at a price of r = 9. The demand curve facing the monopolist is P = 288 - 2Q.

a) What is the monopolist's total cost function?

b) How much output should the monopolist produce in order to maximize profit?

c) How much labor should the firm hire to produce this output?

d) How Much Capital should the firm hire? 

e) What price should the monopolist charge?

f) What is the deadweight loss?

g) What is the Price Elasticity of Demand at the profit-maximizing price and quantity?

Reference no: EM132283951

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