A monopolist’s demand function is given as Q=2000-10P where is the quantity is produced and sold and is the price per unit in Ksh. If the firm’s marginal cost is K.sh100:
i. Calculate the monopolist’s equilibrium quantity and price. 3MKS ii. Suppose the monopolist behaves competitively, how would the answers in (i) above change?
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Answer:
i)Q = 2000 - 10P
At equilibrium
2000 - 10P = 100
10P = 2000 - 100
10P/10 = 1900/10
P = 190
Equilibrium price will be 190Rwf
Equilibrium quantity will be
Q = 2OOO - 10P
Where P = 190
Therefore;
2000 - 10(190) = Q
Q = 2000 - 1900
Q = 100
ii) The price for the commodities will increase or remain the same in the worst scenario.
iii) Deadweight loss = 5* ( P2- P1)*(Q1-Q2)
= 5 x 190 x 100
Explanation:
I hope this is helpful
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