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1. Consumers demand a system composed of one unit each of the two components R and U . Demand for the system composed is given by Q = 64 - P and P = PR + PU , and PR and PU are the prices of the components R and U . The supplier of R is a regulated monopolist whose marginal and average cost of production is 4. Regulation ensures that PR = 4. Competition ensures a perfectly elastic supply of the U component equal to its marginal and average cost of 6.

(a) What are the equilibrium price and output for systems assuming no diversification by the R monopolist?

(b) Suppose that the monopolist ties sale of U to R. The monopolist will sell R only to consumers that purchase U from it. What is its profit-maximizing price of U ? How do its profits compare to its profits if it was only an unregulated monopoly supplier of R?

Microeconomics, Economics

  • Category:- Microeconomics
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