[answered] Microeconomics Homework Nine Show your work and/or briefly

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Microeconomics Homework Nine

 

Show your work and/or briefly explain all your answers

 

1. Chapter 10 ? Monopoly. The following table presents cost and

 

demand data for Joe?s note taking service. Joe takes notes for

 

students who want to skip class, and he is the only person at this

 

University who offers such a service, so he has a monopoly (I am

 

implicitly assuming that actually going to class is not a close

 

substitute). Q is the quantity of hours Joe spends taking notes, and the

 

P is the hourly price he charges. Assume (for parts a-c) that Joe is a

 

single price monopolist ? he charges all his customers the same price.

 

Q

 

0

 

1

 

2

 

3

 

4

 

5 P

 

11

 

10

 

9

 

8

 

7

 

6 TR MR

 

----- TC

 

4

 

10

 

14

 

20

 

27

 

37 MC

 

----- ----- a. (6 points) What is Joe?s profit maximizing price and quantity? What

 

is his maximum profit?

 

b. (4 points) Is Joe in long-run equilibrium? Briefly explain your

 

answer.

 

c. (4 points) Is this market efficient? Briefly explain your answer.

 

d. (6 points) If Joe could perfectly price discriminate ? if he knew

 

every customer?s demand curve ? what price would he charge for

 

the first hour of note taking? What price would he charge for the

 

second? How many hours would he spend taking notes?

 

e. (4 points) Assume again that Joe is a perfect price discriminator

 

and that he chooses the price and quantity to maximize profit ? is

 

this market then efficient? Briefly explain your answer.

 

2. (8 points) In the example above showing Joe?s profit maximizing

 

output decision, you should have found that Joe sets his price above

 

marginal cost (P > MC). We call this the monopoly mark-up. Can you think of a special case where Joe, despite being a monopoly, would

 

find it profit maximizing to set P = MC? Assume that Joe cannot price

 

discriminate and briefly explain your answer (hint: consider what

 

makes Joe?s case different from a perfectly competitive firm). In

 

general, what will determine the magnitude of the monopoly mark-up

 

(another hint: is it better to have a monopoly over bubble gum or

 

water)?

 

---

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