The diagram below shows a firm (industry) that earns a normal return to capital if organized competitively. Price in the market place is P_c under competition. We assume at first that marginal cost is fixed at $250 per unit of output and that there are no economies or diseconomies of scale.

[The equation of the demand curve facing the industry is P = 500 – 1/20 Q].

Calculate the total revenue to the competitive firms, assuming free entry. What is total cost under competition? Calculate consumer surplus under competition.

Now assume that you bought all the firms in this industry, combining them into a single-firm monopoly protected from entry by a patent. Calculate the profitmaximizing price, P_m, total revenue from the monopoly, total cost, profit, and consumer surplus. Also compare the competitive and monopoly outcomes. Calculate the deadweight loss from monopoly. What potential remedies are available?

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Dollars ($) 500 375 Pc = MRc = 250 0 2,500 5,000 10,000 MRm MC = ATC D Units of output, Q