Chapter 10

The employment of teaching assistants (TAs) by major universities can be characterized as a monopsony. Suppose the demand for TAs is $W=30,000-125n$ where $W$ is the wage (as an annual salary) and $n$ is the number of TAs hired. The supply of TAs is given by $W=1000+75n$ a. If the university takes advantage of its monopsonist position, how many TAs will it hire? What wage will it pay? b. If, instead, the university faced an infinite supply of TAs at the annual wage level of $\mathrm{\$}10,000,$ how many TAs would it hire?

Dayna's Doorstops, Inc. (DD) is a monopolist in the doorstop industry. Its cost is $C=100-5Q+Q^2$, and demand is $P=55-2Q$ a. What price should DD set to maximize profit? What output does the firm produce? How much profit and consumer surplus does DD generate? b. What would output be if DD acted like a perfect competitor and set $\mathrm{MC}=P?$ What profit and consumer surplus would then be generated?c. What is the deadweight loss from monopoly power in part (a)? d. Suppose the government, concerned about the high price of doorstops, sets a maximum price at $\mathrm{\$}27.$ How does this affect price, quantity, consumer surplus, and DD's profit? What is the resulting deadweight loss? e. Now suppose the government sets the maximum price at $\mathrm{\$}23.$ How does this decision affect price, quantity, consumer surplus, DD's profit, and deadweight loss? f. Finally, consider a maximum price of $\mathrm{\$}12$. What will this do to quantity, consumer surplus, profit, and deadweight loss?

There are 10 households in Lake Wobegon, Minnesota, each with a demand for electricity of $Q=50-P$ Lake Wobegon Electric's (LWE) cost of producing electricity is $\mathrm{TC}=500+\mathrm{Q}$ a. If the regulators of LWE want to make sure that there is no deadweight loss in this market, what price will they force LWE to charge? What will output be in that case? Calculate consumer surplus and LWE's profit with that price. b. If regulators want to ensure that LWE doesn't lose money, what is the lowest price they can impose? Calculate output, consumer surplus, and profit. Is there any deadweight loss? c. Kristina knows that deadweight loss is something that this small town can do without. She suggests that each household be required to pay a fixed amount just to receive any electricity at all, and then a per-unit charge for electricity. Then LWE can break even while charging the price calculated in part (a). What fixed amount would each household have to pay for Kristina's plan to work? Why can you be sure that no household will choose instead to refuse the payment and go without electricity?

A certain town in the Midwest obtains all of its electricity from one company, Northstar Electric. Although the company is a monopoly, it is owned by the citizens of the town, all of whom split the profits equally at the end of each year. The CEO of the company claims that because all of the profits will be given back to the citizens, it makes economic sense to charge a monopoly price for electricity. True or false? Explain.

A monopolist faces the following demand curve: \[ Q=144 / P^{2} \] where $Q$ is the quantity demanded and $P$ is price. Its average variable cost is \[ \mathrm{AVC}=Q^{1 / 2} \] and its fixed cost is 5 a. What are its profit-maximizing price and quantity? What is the resulting profit? b. Suppose the government regulates the price to be no greater than $\mathrm{\$}4$ per unit. How much will the monopolist produce? What will its profit be? c. Suppose the government wants to set a ceiling price that induces the monopolist to produce the largest possible output. What price will accomplish this goal?

In some cities, Uber has a monopoly on ride-sharing services. In one town, the demand curve on weekdays is given by the following equation: $P=50-Q$ However, during weekend nights, or surge hours, the demand for rides increases dramatically and the new demand curve is: $P=100-Q$. Assume that marginal $\mathrm{cost}$ is zero. a. Determine the profit-maximizing price during weekdays and during surge hours. b. Determine the profit-maximizing price during weekdays and during surge hours if $\mathrm{MC}=10$ in stead of zero. c. Draw a graph showing the demand, marginal revenue, and marginal cost curves during surge hours from part (b), indicating the profit-maximizing price and quantity. Determine Uber's profit and the deadweight loss during surge hours, and show them on the graph.