Answer to Question #299093 in Microeconomics for Magodi

Question

A discriminatory farmer monopolist sells the product to college students and lecturers.

The demand function for students is Qsd=200-25p and the demand function for

lecturers is Qld=400-25p.Marginal cost is $1 per product. Calculate the amount of

product the monopolist sells for students and Lecturers. At what price level? [5

marks]

b. Suppose a firm is operating in a monopolistically competitive market structure.

i.Mention at least three characteristics of this market structure. [3 marks]

ii.What type of demand curve would the firm experience? Why? [2 marks]

iii.Draw the cost and revenue curves for a typical monopolistically competitive firm

in the short run for a given price level and explain how the firm chooses the level of

output that maximizes profit. [5 marks]

Answer 1

Total quantity demanded$= Qsd+Qld$

$=200-25p+400-25p$

$Qd=600-50p$

$Total Revenue= Q×p= (600-50p)×p$

$=600p-50p^{2}$

Quantity supplied is maximum when Marginal revenue (M.R) equals (M.C).

$M.R= 600-100p$

Equating v$MR=MC$

$600-100p=1$

$100p=599$

$P=5.99$

$Qd=600-50×(5.99)$

$Qd= 300.5$

Characteristics of a monopolistic competition:

• Relatively large number of sellers.
• Defferentiated products.
• Easy entry, easy exit.

Monopolistic competition has a kinked demand curve.