Homework Answers
Marginal revenue is required to be find which has the same intercept as that of a demand function but twice the slope. Hence MR = 6 - 0.004Q. MC = 0.6 + 0.001Q
Use MR= MC for optimal quantity and price by monopolist
6 - 0.004Q = 0.6 + 0.001Q
5.4 = 0.005Q
Q = 1080
P = 3.84
Now find the competitive quantity and price
MC = P
6 - 0.002Q = 0.6 + 0.001Q
Q = 1800
P = 2.4
Deadweight loss = 0.5*(Monopoly price - marginal cost)*(competitive quantity - Monopoly quantity)
= 0.5*(3.84 - 1.68)*(1800 - 1080)
= 777.60
This is the required answer for deadweight loss
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found in a perfectly competitive market.
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