Microeconomics II
B. A. Economics 3rd Sem
JSGP, JGU
SET B
Attempt all questions – 25 marks
Q. 1 Consider the only coal mining firm in the market. The total cost function
is: TC = 100 – 5Q + Q2, and the market demand is P = 55 – 2Q. What is the
deadweight loss from monopoly power?
Suppose the government sets a maximum price at $27 per unit.
Find the following:
1) market price and quantity
2) the firm’s profit
3) consumer surplus, and
4) deadweight loss both before and after the price ceiling is imposed. Show
diagrams.
(10 marks)
Q. 2 A monopolist has a constant marginal cost of $30 per unit of output, and the
price elasticity of demand is -3. What is the firm’s profit-maximizing price? (5
marks)
(A) $20
(B) $45
(C) $25
(D) $10
Q. 3 A firm has two factories for which costs are given by:
Factory #1: C1(Q1) =10Q2
Factory # 2: C2(Q2) =20Q2
The firm faces the following demand curve:
P =700 - 5Q
where Q is total output – i.e., Q = Q1 + Q2. On a diagram, draw the marginal cost
curves for the two factories, the average and marginal revenue curves, and the
total marginal cost curve (i.e., the marginal cost of producing Q = Q1 + Q2).
Indicate the profit-maximizing output for each factory, total output, and price.
Calculate the values of Q1, Q2, Q, and P that maximize profit. (10 marks)