monopoly doubt

[riyaf]

plz help with the following question

25.4 (0) A monopolist has a cost function given by c(y) = y2 and faces
a demand curve given by P(y) = 120 −y.

(c) If you wanted to choose a price ceiling for this monopolist so as to
maximize consumer plus producer surplus, what price ceiling should you
choose? $80.

[Homer Simpson]

well, here's my guess. please correct me if i am wrong :)

at MR=MC, i get y=30 and p=90

The only way i can maximize total surplus is by eliminating the whole dead-weight loss incurred. That is possible when i produce the highest quantity, given cost constraint, that is at P = MC

therefore, y = 40 p=80

Any price below this, the monopolist will have losses and above this, dead-weight loss is incurred. Therefore, p=80 is the highest possible price to maximize total surplus

[Anjali]

@tsuki , the answer you have deduced , is of the case when the monopolist is price discriminating . In that case , total surplus is maximised ( each person is charged his max willingness to pay ) . But in this case , we are not told whether the monopolist is price discriminating or not. Because if he is not , then the price ceiling would be 90 , else he will incur losses .
People please help !

[Homer Simpson]

hey, can anyone help out with this question?

[vandita24x7]

Tsuki is correct.

 Anjali, when there is price discrimination under monopoly, monopolists try to extract as much as consumer surplus as possible(depending on the degree of price discrimination). So consumer surplus is not maximised rather it goes on reducing, for example in first degree price discrimination CS = 0

On Thu, Apr 10, 2014 at 11:30 AM, Tsuki [via Discussion forum] <[hidden email]> wrote:

hey, can anyone help out with this question?

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NAML

[Anjali]

@vandita , so you mean that in this question , we will take the case of 1st degree price discrimination ? Actually I was getting confused , because the nature of monopoly is not mentioned.

[vandita24x7]

anjali, since the nature of monopoly is not mentioned, why worry about it? just solve it nomal MR = MC way.

 Also the differnce between monopoly and Perfect competition is that in monopoly CS is never maximised. U think, as a monopolist would u be thinking of the welfare of the consumer?? only in PC CS is maximum

On Thu, Apr 10, 2014 at 12:36 PM, Anjali [via Discussion forum] <[hidden email]> wrote:

@vandita , so you mean that in this question , we will take the case of 1st degree price discrimination ? Actually I was getting confused , because the nature of monopoly is not mentioned.

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NAML

[kangkan]

I believe total surpuls is always maximized when price= MC..if it is not ,marginal willingness to pay will be more(or less0 than the cost of providing one more unit..in such a scenario,there will always be room to improve total surplus

[Anjali]

But in this case , CS will be 0 , there will be just PS !

[Akshay Jain]

In this case we want to get at dat particular price vch can maximise the total surplus....so ve cant take into a/c the case of discriminating monopolist, coz in dat case there is no particular value of price that vl be charged (not a fixed value of price)....so we take dat value of price vch eliminate all dead-weight loss...P equal MC

[vandita24x7]

Market demand curve in PC is downward sloping

On Thu, Apr 10, 2014 at 2:02 PM, Anjali [via Discussion forum] <[hidden email]> wrote:

But in this case , CS will be 0 , there will be just PS !

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[Akshay Jain]

If u take into a\c the case of discriminatin monopolist den also the minimum price dat a firm can charge is the price dat it shall charge in case of perfect competition..(perfect competition maximize total surplus)...which is also P equal MC

[Anjali]

Yeah got it Akshay ! Thanks