Let the inverse demand curve for a monopoly firm be:

P = 40

– 0.001 Q and let the total cost of the firm be:

C = 10Q + 0.01Q 2

(a) Calculate the equilibrium price and output level of the monopolist.

(b) Determine the average cost curve of the monopoly. Calculate the profit per unit and the total profit for the unregulated monopolist. Calculate the profit per unit and the total profit for the monopolist under the marginal cost pricing rule.

(c) If the marginal cost pricing rule is brought into effect, will the monopolist continue business or will it leave the industry? Explain.

(d) Determine the price if the firm were required by regulation to charge a price equal to average cost. What problems do you think an average cost pricing scheme will encounter?