14.2

a. Calculate the profit-maximizing price-quantity combination for the monopolist. Also calculate the monopolist's profits.

b. What output level would be produced by this industry under perfect competition (where price= marginal cost)?

c. Calculate the consumer surplus obtained by consumers in case (b). Show that this exceeds the sum of the monopolist's profits and the consumer surplus received in case (a). What is the value of the "deadweight loss" from monopolization? A monopolist faces a market demand curve given by Q=70-p.

a. If the monopolist can produce at constant average and marginal costs of ACMC = 6, what output level will the monopolist choose in order to maximize profits? What is the price at this output level? What are the monopolist's profits?

b. Assume instead that the monopolist has a cost structure where total costs are described by C(Q) 0.2502-5Q+300. With the monopolist facing the same market demand and marginal revenue, what price- quantity combination will be chosen now to maximize profits? What will profits be?

c. Assume now that a third cost structure explains the monopolist's position, with total costs given by C(Q) 0.013303-5Q+250. Again, calculate the monopolist's price-quantity combination that maximizes profits. What will profit be? Hint: Set MC-MR as usual and use the quadratic formula to solve the second- order equation for Q.

d. Graph the market demand curve, the MR curve, and the three marginal cost curves from parts (a), (b), and (c). Notice that the monopolist's profit-making ability is constrained by (1) the market demand curve (along with its associated MR curve) and (2) the cost structure underly- ing production.