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Monopoly Behaviour Sem 5

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2 views

Monopoly Behaviour Sem 5

Uploaded by

humanature123456
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Q1: The demand curve for a product is P=100−2QP = 100 - 2Q, and the market price is ₹60.

Calculate:

1. Calculate the equilibrium quantity QQ.

2. Compute the consumer surplus.

3. Explain the impact on a diagram.

Solution:

1. Find the equilibrium quantity:


At P=60P = 60:

60=100−2Q ⟹ 2Q=40 ⟹ Q=2060 = 100 - 2Q implies 2Q = 40 implies Q = 20

2. Compute the consumer surplus:


Consumer surplus is the area of the triangle above the price line and below the demand
curve:

CS=12×Base×Height
CS = \frac{1}{2} \times \text{Base} \times \text{Height}

o Base = Q=20Q = 20.

o Height = 100−60=40100 - 60 = 40.

CS=12×20×40=₹400CS = \frac{1}{2} \times 20 \times 40 = ₹400

3. Diagram Impact:

o The demand curve is downward sloping.

o The price line is horizontal at ₹60.

o Consumer surplus is the triangular area between the demand curve and price,
starting from P=100P = 100 (y-axis) to P=60P = 60.

Q2: Producer Surplus in Monopoly

A monopolist faces the demand curve P=200−4QP = 200 - 4Q and has a marginal cost (MC) of ₹80
per unit. The monopolist maximizes profit at Q=15Q = 15.

Tasks:

1. Find the price charged by the monopolist.

2. Calculate the producer surplus.

3. Discuss the impact on the diagram.

Solution:

1. Find the price:


Substitute Q=15Q = 15 into the demand equation:
P=200−4(15)=200−60=₹140P = 200 - 4(15) = 200 - 60 = ₹140

2. Calculate producer surplus:


Producer surplus is the area between the price charged and the marginal cost (MC):

PS=(P−MC)×Q=(140−80)×15=₹60×15=₹900PS = (P - MC) \times Q = (140 - 80) \times 15 = ₹60 \times


15 = ₹900

3. Diagram Impact:

o The producer surplus is represented as the rectangular area between the price
(₹140) and MC (₹80), up to Q=15Q = 15.

o The supply curve overlaps the MC curve.

Q3: Combined Consumer and Producer Surplus

In a competitive market, the demand curve is P=120−2QP = 120 - 2Q, and the supply curve is
P=40+QP = 40 + Q.

Tasks:

1. Find the equilibrium price and quantity.

2. Calculate consumer surplus and producer surplus.

3. Analyze the impact on a diagram.

Solution:

1. Find equilibrium:
At equilibrium, demand = supply:

120−2Q=40+Q ⟹ 80=3Q ⟹ Q=26.67120 - 2Q = 40 + Q \implies 80 = 3Q \implies Q = 26.67

Substitute Q=26.67Q = 26.67 into either equation to find PP:

P=40+26.67=₹66.67P = 40 + 26.67 = ₹66.67

2. Calculate consumer surplus:


Consumer surplus = area of the triangle above the price line:

CS=12×Base×HeightCS = \frac{1}{2} \times \text{Base} \times \text{Height}

o Base = Q=26.67Q = 26.67.

o Height = 120−66.67=53.33120 - 66.67 = 53.33.

CS=12×26.67×53.33=₹711.11CS = \frac{1}{2} \times 26.67 \times 53.33 = ₹711.11

3. Calculate producer surplus:


Producer surplus = area of the triangle below the price line:

PS=12×Base×HeightPS = \frac{1}{2} \times \text{Base} \times \text{Height}

o Base = Q=26.67Q = 26.67.


o Height = 66.67−40=26.6766.67 - 40 = 26.67.

PS=12×26.67×26.67=₹355.56PS = \frac{1}{2} \times 26.67 \times 26.67 = ₹355.56

4. Diagram Impact:

o The consumer surplus is the triangular area between the demand curve and the
price line.

o The producer surplus is the triangular area between the supply curve and the price
line.

Q4: Tax Impact on Surpluses

The government imposes a tax of ₹20 per unit on a product with demand P=100−2QP = 100 - 2Q and
supply P=20+QP = 20 + Q.

Tasks:

1. Find the new equilibrium price and quantity after the tax.

2. Calculate the new consumer and producer surpluses.

3. Discuss the deadweight loss.

Solution:

1. New equilibrium price and quantity:


With the tax, the price received by producers is P−20P - 20. Thus:

100−2Q=20+Q+20 ⟹ 100−40=3Q ⟹ Q=20100 - 2Q = 20 + Q + 20 \implies 100 - 40 = 3Q \implies


Q = 20

Price consumers pay:

P=100−2(20)=₹60P = 100 - 2(20) = ₹60

2. Consumer surplus:
Before tax: CS=12×(Qold)×(Height)CS = \frac{1}{2} \times (Q_{\text{old}}) \times (\
text{Height}).
New CS after tax:

CS=12×20×(100−60)=₹400CS = \frac{1}{2} \times 20 \times (100 - 60) = ₹400

3. Producer surplus:
New producer price = P−20=₹40P - 20 = ₹40.
New PS:

PS=12×20×(40−20)=₹200PS = \frac{1}{2} \times 20 \times (40 - 20) = ₹200

4. Deadweight loss:
DWL is the area of the triangle lost due to the reduction in quantity:

DWL=12×(Tax)×(Reduction in Quantity)DWL = \frac{1}{2} \times (\text{Tax}) \times (\text{Reduction


in Quantity})
Reduction in quantity = Qold−Qnew=30−20=10Q_{\text{old}} - Q_{\text{new}} = 30 - 20 = 10.

DWL=12×20×10=₹100DWL = \frac{1}{2} \times 20 \times 10 = ₹100

Diagram Impact:

 Consumer surplus shrinks, as the price consumers pay increases.

 Producer surplus shrinks, as producers receive less.

 Deadweight loss is the triangular area between the reduced quantity and the tax.

Let me know if you'd like to explore more or require diagrams!

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