Consider a small, isolated town in which a brewery faces the following inverse demand: P = 15 - 0.33Q.
The brewery can produce beer at a constant marginal and average total cost of $1 per bottle.
a. Calculate the profit-maximizing price and quantity, as well as producer and consumer surplus and the deadweight loss from market power.
b. If it were possible to organize the townsfolk, how much would they be willing to pay the brewery to sell beer at a price equal to its marginal cost?
c. What is the minimum payment the brewery would be willing to accept to sell beer at a price equal to marginal cost?
d. Is there potentially a bargain that can be struck between the townsfolk and brewery? What would the deadweight loss be if such a bargain were struck?