Question 1 (a)

MC ATC MR QUANTITY

  • Profit-maximizing point: MC = MR

  • Allocatively efficient point: MC = D (Price)

Question 1 (b)

60 40 20 10 Elastic 20 Unit elastic Inelastic 50 800 10 20 Elastic Unit elastic 30 40 50 Inelastic

Question 1 (d)

  • Graph for monopoly

    Q.) Consumer surplus Deadweight loss pm Producer pc surplus Qrn QC MC Quantity

  • Deadweight loss depends on MC and D

  • Lump-sum subsidy will not change the deadweight loss, because the profit-maximizing is still the same

Question 2 (d)

Cross Price Elasticity Qx2 - Qxl Py2 + p \> 0 Substitutes (+/+ or -/-) 0/0AQx O/OAP < 0 Complements (+/- or -/+) = 0 Unrelated goods (0/+ or 0/-)

Price Pie Crust Qd Apples Cross-Price Elasticity -0.5 + 100 0 -5%

Question 3 (c)

  • Graph for tariff

    Price Demand Consumer Surplus Producer Surplus Tax Societal LOSS \*Orld OuantiS' of Imports (with tariff) of Imports (without tariff) Supply I Societal 'LOSS Quantity

  • In order to maximizes the sum of consumer and producer surplus, per-unit tariff should be 0.

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