1. Answer each of the following statements True/False/Uncertain. Give a full explanation of your answer.

A) A monopolist will never price in the inelastic portion of consumer demand.

B) Monopolistic competition allows firms to earn a positive profit in the long run.

C) Some methods of price discrimination maximize total surplus.

2. Suppose a market is characterized by inverse demand P = 5,000-5Q. The marginal revenue curve associated with this market is MR=5,000-10Q. Marginal cost is constant at MC=40.

1. Solve for the equilibrium price and quantity if the market is characterized by perfect competition.
2. Solve for the equilibrium price and quantity if the market is characterized by a monopoly.
3. Determine consumer and producer surplus for A) and B), explain why surplus is positive or zero in each case,
4. Explain why total surplus is maximized under perfect competition (absent government intervention, externalities, etc.), but it is not maximized under monopoly.
5. Suppose the government could pay the monopolist (in B)) to supply at the perfectly competitive equilibrium level (in A)). Determine the maximum amount the government would be willing to pay the monopolist to provide at the perfectly competitive equilibrium.