Economics Monopoly - Problem Set

1 Principles of Economics Term 1, part 2 Monopoly -­ Problem Set For numerical exercises, you will have to show how you reached your result. Question 1 Consider a monopolist firm which supplies in a market where demand for its product is given as P=30-­-2Q. Total cost is given in the following table. Find the profit maximising point, and profit. Q TC 0 10 1 35 2 51 3 60 4 70 5 82 6 96 7 112 8 130 9 150 10 172 11 197 12 225 13 256 14 290 15 329 Question 2 Monopolies use their market power to: a. charge prices that equal minimum average total cost. b. attain normal profits in the long run. c. restrict output and increase price. d. dump excess supplies of their product on the market. Question 3 If a monopolist can sell 7 units when the price is €3 and 8 units when the price is €2, then marginal revenue of selling the eighth unit is equal to a. €2. b. €3. c. €16. d. €-­-5. 2 Question 4 Q Price TC 0 40 10 1 30 15 2 20 25 3 10 40 4 0 60 i) How much is the marginal revenue of the second unit? ii) How much is the marginal cost of the fourth unit? iii) How much is the maximum profit a monopolist can earn? iv) What price would the monopolist set to maximise profit?