Question

A monopolist faces a market (inverse) demand curve P = 50 − Q . Its total cost is C = 100 + 10Q + Q2 .

a. (1 point) What is the competitive equilibrium benchmark in this market? What profit does the firm earn if it produces at this point?

b. (2 points) What is the monopoly equilibrium price and quantity? What profit does the firm earn if it produces at this point?

c. (2 points) What is the deadweight loss at the monopoly outcome?

d. (2 points) If we implement some form of regulation here (don’t worry about different forms of pricing and rate structure yet, just stick with the basic model), what would the welfare- maximizing regulated price and quantity be? What is deadweight loss at that point?

e. (1 point) Why is there still deadweight loss at the regulated outcome?

f. (2 points) Draw a graph illustrating your answers (hint: feel free to freehand-draw the AC curve, don’t spend too much effort calculating it).

Answer 1

Angwepi a comelitive equibm condi tion wi七bra um condition the fra m ean n positive G) Given, p 50-0 TR (Totou Revenue) : p (50-q) Q 드 509-02 mc (marginad cost) de ÷ MR (Marginal Revenue) dTR 50-26( 50-1022 P 50-10 2 Therefore , the monopo rice x 40 and quatity i o mo ro reto ne (7-1

braiu m Condition is P-mc economic equikibniun 50-10+2 aF 13.333 .: P: 50-13 . 333-3C-167 Tunetone, the welfare maximi іл 36'GT and quanh ky i20 13.333. ing pwice