Question

Tir e n casting firm when hired lw keurig, which is a monopoly in single-serving codle mne to advise them on their lines The executive at keurig know that their r es is pritable, but they don't understand the economies behind it. Based on market research, Keurig n the following information about the demand and production costs of its coffee machines o Demand: P - 1000-100 Total Revenue TR - 10001 - 100% Marginal Revenue MR - 1000 - 200 Marginal Cost: MC - 100 + 100 where indicates the under of machines sold and P is the price (a) Find the price and quantity that maximize the company's profit. (1) Find the price and quantity that would maximize social welfare. (c) Calculate the dead weight loss from monopoly.

Answer 1

2) a) monopoly Profit Maximizing condition,

MR= MC

1000-20q=100+10Q

900=30Q

Q=900/30=30

P=1000-10*30=1000-300=700

B) the competitive market maximizes social welfare.

Competitive equilibrium at where price =Marginal cost

P=MC

1000-10q=100+10q

900=20q

Q*=900/20=45

P*=1000-10*45=1000-450=550

C) marginal cost at monopoly output=100+10*30=100+300=400

Deadweight loss=1/2*(700-400)*(45-30)=0.5*300*15=2250

D)i) because the market in which Amazon is operating is perfect competition,so price will be equal to marginal cost .

Because Amazon is earning loss ,so average total cost will be higher than price.

Because Amazon is operating and it didn't shut down in short run ,so average variable cost is lower than price.

ii)

Date ME Ave Meskent supply quantity

iii)As firms are earning losses ,so in long run some of the firms exit the market which Decrease the market supply and Market supply curve shifts leftwards. And due to decrease in supply equilibrium price increases . And firms start earning normal profits.

Because price increases, so for Amazon price equal to marginal cost will be at a higher quantity ,so quantity supplied of Amazon will increase.