5. Dwayne\'s Doorstops, Inc. (DD), is a monopolist in the doorstop industry. Its

Question

5. Dwayne's Doorstops, Inc. (DD), is a monopolist in the doorstop industry. Its cost is C = 100-5Q + Q, and demand is P-55-2Q. a. What price should DD set to maximize profit? What output does the firm produce? b. What would output be if DD acted like a perfect competitor and set MC = P? what c. What is the deadweight loss from monopoly power in part a.? How much profit and consumer surplus does DD generate? profit and consumer surplus would then be generated? d. Suppose the government, concerned about the high price of doorstops, sets a maximum price of $27. How does this affect price, quantity, consumer surplus and DD's profit? What is the resulting deadweight loss? Now suppose the government sets a maximum price of $12. What will this do to quantity, consumer surplus, profit and deadweight loss? e.

Explanation / Answer

a) for maximize profits , MR=MC

TR = 55Q - 2Q2

MR = 55 - 4Q and MC = -5 + 2Q

55-4Q = -5 + 2Q

6Q = 60 or Q = 10

P = 55 - 2*10 = 35

so profit maximizing price is $35 and quantity is 10.

Profit =TR - TC

profit = ( 35*10 ) - ( 100 - 5*10 + 102)

profit = 350 - ( 100 - 50 + 100

profit = 350 - 150 = $ 200

consumer surplus = 1/2 ( 55- 35) * 10 = $ 100

so consumer surplus = $100

b) Set MC = P

MC = -5 + 2Q and P = 55-2Q

-5+2Q = 55 -2Q

4Q = 60

Q = 15

and P = 55 - 2*15 = $25

Profit = TR -TC => (25*15) - ( 100 - 5*15 + 152)

Profit = 375 - 250 = $125

COnsumer surplus = 1/2 * (55-25) * 15

CS = $225

C) Deadweight loss = 1/2 (35-15) * ( 15-10 )

DL = $50

d) please upload it again. it against chegg policy

Related Questions

Navigate

• Browse (All)
• Browse 5
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.