Suppose a monopoly can produce any level of output it wishes at a constant marginal [and average} cost of$lfl per unit. The firm faces a
Suppose a monopoly can produce any level of output it wishes at a constant marginal [and average}
cost of$lfl per unit. The firm faces a market demand curve given by 0,; = TD – P. a} Calculate the profit—maximizing price—quantity combination of the monopolist as well as
monopolist’s profit. Interpret your answer [3 points}. Is} Calculate the consumer surplus, producer surplus, and deadweight loss in this market (nt: find
the perfect competition outcome}. Interpret your answers [3 points}. c} should be the regulated price for this market? And what are the problems faced by a regulator
when establishing this price?I Interpret your answers {Er points]. d} Suppose that the demand for this good has reduced to QB = 5i] — P, how would your answers
for letters a._. b, and c change?I Interpret your answer [3 points].
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