six. 1a) A monopoly is usually facing the necessity and limited cost curves which is P = doze - zero. 002Q and MC = 3 & 0. 001Q. When the demand curve is definitely P = a- bQ, the marginal revenue shape will be MR = a- 2bQ, consequently , MR = 12 - 0. 004Q. (Refer to figure1)
To optimize the profits, the business should generate at the end result level in which marginal revenue is corresponding to marginal expense. If the limited revenue can be higher than marginal cost, the firm can increase gain producing even more. If the marginal cost is above marginal expense, the company can enhance profit by generating less. When ever marginal is definitely equal to marginal cost, the firm cannot increase profit further. Limited revenue can be equal to limited cost, which can be 3 & 0. 001Q equal to doze - zero. 004Q, the net income maximizing outcome is 1800 at $4. 8. ( Refer to physique 2)
6. 1aii) The allocative productivity occurs the moment demand is definitely equal to minor cost. The value that customers place on an excellent or assistance which mirrored in the cost they are ready and in a position to pay is usually equal to the cost of the resources consumed in creation. The market is definitely maximizing their social excess, which is 12 - zero. 002Q comparable to 3 + 0. 001Q, the socially efficient result level is 3000.
six. 1aiii) The retail price ceiling is a government requires that the market price cannot rise above certain level. Induce the monopoly to create at socially efficient outcome level is definitely 3000, and so the price roof should be by $6.
6. 1b) Presume a monopoly produces and sells an item which incurs external costs during the creation process. It is also possible for this firm to reach allocative efficiency in the absence of government intervention. The monopoly will definitely produce on the quantity the moment marginal value is equal to minor revenue to maximize its earnings. Refer to figure 3, in this instance, the quantity can be Q0 as well as the market price is usually P0. However , the limited cost curve will push upward as there is an external costs. Assuming the...