Download ICEF, Microeconomics

NRU HSE-2016, Microeconomics
Class-08 (31/10-06/11)
Monopoly
1. Firm A is the only producer of goods X and Y. It makes X at constant marginal cost cX and sells them at a price of
pX per unit and it produces good Y at constant marginal cost cY=2cX and sells at a price of pY per unit. The demand
curve for X has a constant price elasticity of demand equal to -2. The demand curve for Y has a constant price
elasticity equal to -1,5. Find pX/pY.
2. Consider a monopolist that operates with constant returns to scale technology with unit cost of production
equal 4 . Assume that all consumers have individual demand functions for the monopolist’s product
q d P   10  P and there are 100 consumers.
(a) Find the resulting efficiency loss.
(b) Find the per unit subsidy that results in efficient output. Provide both algebraic and graphical solution.
3. A monopoly manufacturer of good X sells quantity q to a monopoly retailer. The retailer faces demand
q  1  p , where p is the final price. The retail cost is 0 , and the manufacturer’s cost is C q  сq , where
0  с  1.
(i) Find the retail price under decentralized structure.
(ii) Find the retailer price under vertical integration when both firms are combined in one vertically integrated
firm. Compare with the price found in (i) and explain the result.