9. If the government regulates the price of this natural monopolist to achieve a

Question

9. If the government regulates the price of this natural monopolist to achieve a perfectly competitive output level, consumer surplus will change from-to Price (S) 20 18 10 8.15 LATC 6.306 4 LMC MR 02 4 6 8 10 12 14 16 18 20 Quantity (1,000s) 9.42 11 a. $3,000; $2,500 b. $15,000; $75,350 c. $15,000; $55,814 d. $17,000; $54,600 10. Market conditions change for a monopolist with an original marginal cost of MC-5+ 100. The inverse demand curve rotates from P = 40-51 to P-47-20. What happens to the profit-maximizing price following the rotation of the demand curve? a. b. c. d. The price falls from S18 to $15. The price rises from S31.25 to $41. The price rises from $26 to S34 The price falls from S18.60 to S11.20

Explanation / Answer

Q9
Answer
Consumer surplus is the are above price and below the demand curve.
the monopolist produces at MR=MC, where Q=5000 and P=$14
CS=0.5*(20-14)*5000=$15000
The perfectly competitive firm produces at MC=P
where
Q=11000, P=$6.3
CS=0.5*(20-6.3)*11000=75350

option b

Q10
Answer
the monopolist produces at MR=MC
MR=40-10Q and MR2=47-4Q
equating MR=MC
40-10Q=5+10Q
Q=35/20=1.75
P=40-5*1.75=31.25

MR2=MC
47-4Q=5+10Q
14Q=42
Q=3
P=47-2*3=41
option b

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