Problem 1: Suppose the quantity demanded is given by qd=90-p and a monopolist's marginal cost is given by MC=q (i.e. the marginal cost of the first unit (q=1) is 1; the marginal cost of the second unit (q=2) is 2, etc.).
a. What is the monopolist's marginal revenue curve?
b. What is the monopolist's profit maximizing quantity of production? What is the optimal price for him to charge? Assuming the monopolist has no fixed costs, what is his maximum profit?
c. Assuming the monopolist is maximizing his profits, what is consumer surplus (in dollars)?
d. What is the socially optimal (or efficient) level of production? What would total surplus be at that level (in dollars)?
e. What is the dead weight loss from the existence of a monopoly in this market (in dollars)?
Problem 2: Indicate whether CS, PS, total surplus and dead weight loss would each increase or decrease if:
a. The government imposed a 50% tax on all economic profits.
b. The government imposed a $6 tax on the production of good y.
c. The government imposed a $6 tax on the consumption of y.
d. The monopolist can perfectly (first degree) price discriminate - i.e. the monopolist can tell how much each consumer is willing to pay and can charge each consumer a different price.
e. The government set a price ceiling at $45. (Hint: How does this change the marginal revenue curve?)