1. a. Draw graph illustrating a monopolist facing a downward sloping demand curve and a flat (i.e. constant) marginal co

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1 A Draw Graph Illustrating A Monopolist Facing A Downward Sloping Demand Curve And A Flat I E Constant Marginal Co 1 (88.67 KiB) Viewed 9 times

1. a. Draw graph illustrating a monopolist facing a downward sloping demand curve and a flat (i.e. constant) marginal cost. Show the profit maximizing price and quantity for this monopolist. b. Now assume that the demand curve shifts due to an increase in people's willingness to pay. (Everyone's willingness to pay increases by the same amount, effectively shifting the demand curve up.) The price the monopolist charges will be increased by fill in the blank (more than, less than, the same as) the amount of the increase in willingness to pay. 2. (This question is just an applied version of the previous one.) Suppose that you invented a product that picks fruit faster than any other fruit picker on the market. In fact, your machine picks 10% more fruit in a day than a comparable machine, and its operating cost is the same as the comparable machine. Thus, the farmers using it will make 10% more revenue per day with no increase in operating cost. You want to rent this machine to farmers during the harvest season. The rent is set by the day. Explain briefly how you would go about setting the rent you will charge for this machine. Why might you not be able to capture the entire increase in productivity in your rent? 3. Suppose you have a good that you can sell to two different markets over which you have pricing power. The marginal cost is the same regardless of market. The elasticity of demand for one market (call it "Market A" representing a certain type of customer) is 4 and the elasticity of demand for the other market (Market B) is 3. Evaluate this claim: The market B should get charged a 12.5% higher price than market A. True or false (and explain briefly... the best answers will show and use the appropriate formula!) Can you think of any examples where this logic would apply? How do firms attempt to segment markets to be able to exploit this?