Assignment

INTERMEDIATE MICROECONOMICS II (ECON 2111) ASSIGNMENT I (The Analysis of Competitive Market & Monopoly and Monopsony Market) DUE DATE: 12 JANUARY 2011

1. A monopolist faces the following demand curve: Q = 144/P where Q is the quantity demanded and P is price. Its average variable cost is AVC = Q , and its fixed cost is 5. a) What are its profit-maximizing price and quantity? What is the resulting profit?

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b) Suppose the government wants to set a ceiling price that induces the monopolist to produce the largest possible output. What price will accomplish this goal?

2. Tina has a monopoly on peanut candies in the local market. She is currently charging RM250 per bag and sells 20 in a month. The elasticity of demand is -1.5 at this price and output level. What must be Tina's marginal cost of the last bag of peanut candies produced if she is maximizing profits? Show your working.

3. Melayu property Bhd. has a monopoly on rental dwellings in the local community. The demand for rental dwellings is QD=70000 - 50P. Melayu's marginal cost of providing rental dwellings is MC (Q) = 0.01Q + 20. Suppose that to ease the burden on renters, the government has instituted a price ceiling of RM480. a) What is the profit-maximizing price and quantity? Calculate consumer surplus?

b) Does consumer surplus increase due to this price ceiling? Does social welfare increase as a result of the price ceiling? Show your working.

4. The demand and supply functions for basic cable TV in the local market are given as: Q D = 200000 – 4000P and Qs = 20000 + 2000P. a) Calculate the consumer and producer surplus in this market. b) If the government implements a price ceiling of RM 15 on the price of basic cable service, calculate the new levels of consumer and producer surplus. c) Are all consumers better off? Are producers better off? Briefly explain.

5. Vegetable fiber traded in a competitive world market and imported into Malaysia at a world price of RM9 per pound....