Question 1. 1. A monopolist is facing a demand function Q = 20 – P. The monopolist has a cost function C(Q) = 90 + 2 . Please answer this question graphically and also analytically whenever possible. a. If the monopolist charges a uniform price to all its customers, what is the profit maximizing price, and quantity? What is the profit and the consumer surplus? b. Suppose the government does not like the outcome in the previous question. What is the minimum price it can force the monopolist to charge that is consistent with the monopolist operating, and why? What would the government need to do to increase the surplus even further? What are the difficulties in achieving this objective? c. How could the monopolist increase profits even further? What is the maximum possible profit achievable in this market, and how can it be achieved?
Question 2: In The Economy, answer Exercise 7.3, Unit 7: Below you can see the average and marginal costs per student for the year 1990-1 that Koshal and Koshal calculated from their research. 1. How do average costs change as the numbers of students rise? 2. Using the data for average costs, fill in the missing figures in the total cost column. 3. Plot the marginal and average cost curves for undergraduate education on a graph, with costs on the vertical axis and the number of students on the horizontal axis. On a separate diagram, plot the equivalent graphs for graduates. 4. What are the shapes of the total cost functions for undergraduates and graduates? (You could sketch them using what you know about marginal and average costs.) Plot them on a single chart using the numbers in the Total cost column. 5. What are the main differences between the universities’ cost structures for undergraduates and graduates? 6. Can you think of any explanations for the shapes of the graphs you have drawn?
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