Micro Economics- Perfect Competition and Monopoly

Assignment 1

1. The market for natural gas in Ontario can be approximated by:

Qs = 14 + 2Png +0.25Po

Qd = -5Png + 3.75Po

Where:  Png = price of natural gas,    Po = Price of Oil

If the price of oil is $18 per barrel

1. What would the free market price and quantity of natural gas be. (4)
2. If a price ceiling was imposed at $1 for natural gas what is the minimum deadweight loss.(2)
3. What would the Maximum deadweight loss (2)

1.  A firm faces the following demand curve:

P = 100 – .01Q   Q is weekly production and P is price

The firms weekly cost function is   C = 50Q + 30,000.  Assume firm maximizes profits.

1. What is Q, P and Total Profit per week (4)
2. The government applies a 10 cent tax per unit what is the new Q, P. (4)

• Chucks Economic Predictions Ltd. is a monopoly.

Its cost is C = 100 – 5Q + Q²  and Demand is P = 55 – 2Q

1. What is profit max price and quantity. How much is profit  (2)
2. What is the allocative efficient price, quantity, and profit. (2)
3. What is the deadweight loss of the monopoly (2)
4. What is the maximum deadweight loss (2)

4. A monopolist has demand curve is P=100-Q/2 Suppose MC=50,
5. Compute optimal price and quantity of monopolist using IEPR. (4)
6. Compute optimal price and quantity of monopolist using MR=MC. (4)

5. A multi plant monopolist has the following Demand and Cost structure

P = 40 -Q     TC₁ = Q₁ +Q₁²      TC₂ = 4Q₂ + .5Q₂²

Determine the profit maximizing price and output in each factory (8)