MPE781 Supplementary Supervised Exam

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Question 1 (18 points)

A single-price monopoly faces the following demand and production costs:

Demand: P = 10 - Q

Marginal Revenue: MR = 10 - 2Q

Marginal Cost: MC = 1 + Q

  • Find the price and quantity that maximizes the firm's profit. (6 Points)
  • Calculate the consumer surplus, producer surplus, total surplus, and deadweight loss from monopoly. (6 Points)
  • Suppose that the monopoly can perfectly price discriminate, find the quantity that maximizes the firm's profit and the total surplus to society. (3 Points)
  • Does price discrimination increase or decrease social welfare? Explain your answer using the concepts learnt in this unit. (3 Points)

(6+6+3+3= 18 Points)

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