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Posted: April 10th, 2022
Monopolist selling widgets - Microeconomics
You are a monopolist selling widgets. You face costs of C(Q) = 10 + 2Q^2
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Suppose you face the following market demand: Q(p) = 3000 - 2p.
(a) What price will you charge? How many widgets will you sell?
(b) Suppose that a policy group claims that private costs do not equal social costs. They say that social marginal cost = 3Q. If you use SMC instead of PMC, what price will you charge? How many widgets will you sell?
(c) In this situation (the one in (b)), are you generating a negative externality? Discuss (in two sentences or less) how the government might get you to make decisions based off of SMC (in this particular situation)?
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