ECO 260

Fall 2005

 

Homework 1

 

Due Wednesday, September 21, 2005

 

 

1.         Assume the demand function for a market is given by

 

            P(Q) = 50 – 5Q

 

            And a firm’s marginal cost function is given by

 

                        MC = 5

 

            A.        Assume perfect competition:

 

                        (i)         Calculate the equilibrium quantity Q^C.

                        (ii)        Calculate the competitive price P^C.

                        (iii)       Calculate the consumer surplus CS.

                        (iv)       Calculate the producer surplus PS.

                        (v)        Calculate social welfare W.

 

            B.         Now assume the firm is a monopoly:

 

                        (i)         Calculate the monopoly quantity Q^M.

                        (ii)        Calculate the monopoly price P^M.

                        (iii)       Calculate the consumer surplus CS.

                        (iv)       Calculate the producer surplus PS.

                        (v)        Calculate social welfare W.

                        (vi)       Calculate the dead-weight loss from the monopoly DWL.

 

2.         Assume the demand function for a market is given by

 

            P(Q) = 100 – 7Q

 

And a firm’s marginal cost function is given by

 

            MC(Q) = 20 + 5Q

           

A.        Assume perfect competition:

 

                        (i)         Calculate the equilibrium quantity Q^C.

                        (ii)        Calculate the competitive price P^C.

                        (iii)       Calculate the consumer surplus CS.

                        (iv)       Calculate the producer surplus PS.

                        (v)        Calculate social welfare W.

 

            B.         Now assume the firm is a monopoly:

 

                        (i)         Calculate the monopoly quantity Q^M.

                        (ii)        Calculate the monopoly price P^M.

                        (iii)       Calculate the consumer surplus CS.

                        (iv)       Calculate the producer surplus PS.

                        (v)        Calculate social welfare W.

                        (vi)       Calculate the dead-weight loss from the monopoly DWL.