Q. Suppose the market demand function is given by: Q=100-2P, where Q: total quan
ID: 2496092 • Letter: Q
Question
Q. Suppose the market demand function is given by: Q=100-2P, where Q: total quantity, P: market price. And in this market there are two firms with MC=AV= $10. Find each of the following:
1. Perfect competition price, quantity, and consumer surplus?
2. Monopoly price, quantity, consumer surplus, profit, and welfare loss?
3. Cournot price, quantity, consumer surplus , each firm`s profit, and welfare loss?
4. Stackelberg price, quantity, consumer surplus, each firm`s profit, and welfare loss?
5. Collusion quantity, profit from collusion?
Explanation / Answer
Multiple questions asked.
First 4 are answered below.
Demand curve: Q=100-2P or, P=50-0.5Q
This makes MR = 50-Q
MC = 10
a)
Under perfect competition, P=MC
That is,
50-0.5Q = 10
Q*=80
P*=$10
Consumer surplus = (1/2) (P0-P*) (Q*) = (1/2) (50-10) (80) = 1600 units.
b)
Under monopoly, MR=MC
That is,
50-Q = 10
Q*=40
P*=$30
Consumer surplus = (1/2) (50-30) (40) = 400 units.
Welfare loss = Deadweight loss = (1/2) (Qpc – Qm) (P*-MC)
Welfare loss = (1/2) (80-40) (30-10) = 400 units
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