This class exercise is from W11 in MT and covers Monopoly Behaviors (Market Analysis topic). All the exercises are thoroughly calculated, clearly written with good explanation and accurate solutions.
Yes if they produce 0 they have sunk cost (negative profit then they will want
, ,
to exit the market and they the
only supplier with the exit they will destroy
as are
,
the market for tea .
first order condition
but with MC MR
normally monopoly MR MC 0 the optimum 0
= =
means =
is
,
revenue is maximum
with TR =
g- g- ,
MR =
1-29--0 (of E)
,
=
( % %) ,
IT =
TR -
Tc =
pq
-
4 =
44 4 - =
-3%1 >
-4 ( profit made if not
producing)
STR
MR = =
0 with TR=
pq
=
f-(g) q
jq ,
¥
then MR =
d P9
sq =p ¥+9 # =
p+qJ then MR
second order condition
E-=p A- E) =o
=p
-
with E=
-
where MC > 0
, monopolist would choose
a
quantity where demand elastic @ ✗ 1)
E. = -
3¥ .
Iq = -
(1×1%2)=-1 so
demand
monopolist pricing at
is unit -
elastic
the point where
this is
specific to this problem as MC =
0 i. e.
quantity decision determined only by quantity that maximizes TR
revenues maximized where E =L
Px
.
112 -
IT =
Ya 112'
-
4=(3.7-5)
☐
MC
0 ' >
Q
112
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