FreeEconHelp.com, Learning Economics... Solved!: monopoly
Showing posts with label monopoly. Show all posts
Showing posts with label monopoly. Show all posts

6/4/15

Price discriminating monopoly, solving for profit maximization

13:28
Price discriminating monopoly, solving for profit maximization
This post goes over the math required to solve for the profit maximizing price and quantity of a price discriminating monopoly operating in two markets. Consider the following problem:


A cable company sells subscriptions in San Francisco and Boston. The demand function for each of the two groups, which are separate and do not have the ability to re-sell to members of the other community, are Psf = 480 - 4Qsf and Pb = 400 -2 Qb. The cost of providing the cable service for the firm is TC = 500 + 4Q, where Q = Qsf + Qb. If the company can price discriminate between the two markets, what are the profit maximizing prices and quantities for the San Francisco and Boston markets?

To solve this problem, we need to review the steps for finding the profit maximizing price and quantity for a monopoly. We find that we need to find the price and quantity where marginal revenue (MR) is equal to marginal cost (MC).

5/15/12

Comparing perfectly competitive markets with monopolistically competitive markets, the change in surplus and deadweight loss

22:24
Comparing perfectly competitive markets with monopolistically competitive markets, the change in surplus and deadweight loss

This post goes over the math required to show the difference between surplus and equilibrium in a perfectly competitive and monopolistically competitive market. Note that a monopolistically competitive market's math and graph will be the same for a monopoly or an oligopoly.  Here are the equations to work with:

P = 40 - 8Q
MC = 8

4/12/12

Monopoly math problem with a tax

23:46
Monopoly math problem with a tax

This post goes over the algebraic methods necessary to solve common economics monopoly problems.  We assume that you are given a basic demand function and marginal cost function, and are asked to derive marginal revenue function and find out what the monopoly price and quantity will end up being.

First we are probably given either a demand function (solved for Q) or an inverse demand function (solved for P).  We need the inverse demand function because this gives us the slope of the demand curve (since P is on the Y axis).  Once we have the inverse demand function we can solve for the marginal revenue function by doubling the slope (making it steeper).  A past post goes over the math behind calculating monopoly equilibrium price and quantity, so I will go over another example really quickly then introduce the idea of combining demand curves and adding a tax into the mix.

3/16/12

How to find monopoly price and quantity

22:30
How to find monopoly price and quantity

In this post we go over the economics of monopoly pricing.  We start with a demand function and a total cost function, and are able to figure out the necessary calculations to get to equilibrium quantity and price.

Summary:
1)  We need to equate marginal revenue (MR) to marginal cost (MC) and in order to do this we need to figure out what the MR and MC functions are.  If these are known already, skip to step 4.

3/6/12

Calculating changes in consumer and producer surplus after regulating a monopoly

20:01
Calculating changes in consumer and producer surplus after regulating a monopoly

This economics question and answer goes over how to calculate changes in consumer and producer surplus with limited information.  The question asks about a monopoly market that is subject to government regulation in an attempt to increase societal welfare (or total economic surplus).  The actual question being looked at is:

A refrigerator monopolist, because of strong economies of scale, could charge a price of $120 and sell 45 refrigerators in Iceland and its average cost would be $60. On the other hand, the Iceland Planning Commission has determined that 5 refrigerator suppliers would be sufficiently competitive to make price equal to average cost. The five-firm equilibrium would yield a price of $100 and a total output of 50 refrigerators.

2/2/12

Can an upward sloping marginal revenue curve exist?

15:56
Can an upward sloping marginal revenue curve exist?
I have been getting a lot of questions about the possibility of an upward sloping marginal revenue curve recently.  The first few times I blew it off because it is one of those "possible" scenarios that never really happens.  Unfortunately, it seems that a bunch of instructors have asked their students about this, and I don't blame them for being confused.  This post will go over the economics of an upward sloping marginal revenue curve, including a numerical example and an example of where we may see it occurring in the real world.

In order to get an upward sloping marginal revenue curve, it is necessary for the demand curve to be upward sloping.  This is because the marginal revenue curve always has twice the slope of the demand curve.  Another way to think about this, is that the demand curve always follows, or chases the MR curve, so if the MR is upward sloping, the demand curve will have to be as well. 

1/21/12

Monopoly price decisions, a question and answer

08:15
Monopoly price decisions, a question and answer
Here is a quick economics question and answer regarding monopolies:

A monopolist has two types of customers. There are 100 Type A, who will each pay up to $10 for a single unit of the good, and 50 of Type B, who will each pay up to $8. Neither is willing to purchase additional units at any price. If it must charge a uniform price, find that price.

A) Assume that spending $80 on advertising will attract 100 more Type B customers. Should the monopolist advertise? If so, what happens to price?