Downside Set 1
Due 2pm on February
work for full credit score. Submit in school or electronically as a .pdf le.
Suppose US Airways is a monopolist airline
from Philadelphia Airport, and PECO Vitality is a monopolist electrical energy provider
for Philadelphia residents. US Airways faces inverse demand curve
faces inverse demand curve
Each rms have price perform C(Q) = zero:5Q2 + 50.
Elasticity and E ciency.
rm faces a extra elastic demand curve?
Recall from Econ 101
monopolist's provide curve is its marginal price curve. Specific every rm's provide
curve as a perform of Q, PS(Q).(c)
For every rm, what value and
amount ranges maximize complete welfare? (complete welfare is the sum of producer
and shopper surplus). How is that this welfare allotted between customers and
How do these costs and
portions examine to the aggressive equilibrium value and amount?
Present that the comparability in Query 1
generalizes. In different phrases, xing the
to pay at 100 and the availability curve at what you derived partly (b), suppose a
rm faces demand curve PD(Q)
= 100 aQ for some a > zero.
Is the elasticity of demand rising or
lowering in a?
Is the utmost complete welfare
rising or lowering in a? Show and provides financial instinct to your
Is the share of the excess
(p.c of the full surplus) producers obtain rising or lowering in a?
Show and provides financial instinct to your end result.
Calculate the monopoly value
and amount traded for US Airways and PECO. Is the monopolist value mark-up
bigger within the airline or electrical energy market, in comparison with the aggressive
equilibrium? Why? How concerning the monopolist amount discount?
What professional ts do US Airways and PECO earn as
the patron surplus, producer surplus and lifeless weight reduction (DWL) on the
monopoly value. Is producer surplus equal to professional t? Why or why not?
Which trade, airline or
electrical energy, has the bigger DWL when there's a monopoly? Why?
Suppose Mayor Nutter decides
to manage the airline trade in Philadelphia, and tells US Airways that it
can pay it s for every unit it sells.
Arrange US Airway's new professional t maximization
Fixing s, how a lot does US Airways produce?
What stage of s will induce
US Airways to supply the aggressive equilibrium amount? How a lot does this
subsidy price the town authorities?
Suppose as an alternative, Mayor Nutter o ers to pay US
Airways a lump sum subsidy L, which is the same as the di erence between its
monopoly professional ts and aggressive equilibrium professional ts, if US Airways produces at
the aggressive equilibrium value. Calculate L. Which choice is cheaper for the
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