Question
3) Suppose that the Australian airline industry is characterized as follows:C 200 4Q2 total cost function MC 8Q marginal cost function P 160 4Q market
3) Suppose that the Australian airline industry is characterized as follows:C 200 4Q2 total cost function MC 8Q marginal cost function P 160 4Q market demand curve MR 160 8Q market marginal revenue curve (i) If there is only one firm in the industry, for example Qantas, find the monopoly price, quantity, and level of profit. (3 marks) (ii) Find the price, quantity, and level of profit if the industry is competitive. (3 marks) (iii) Use a diagram to illustrate the demand curve, marginal revenue curve and the marginal cost curve (these do not need to be to scale). In the diagram you should illustrate the dead weight losses arising from having a monopoly in the airline industry. Explain what features of the monopoly equilibrium compared to the competitive equilibrium lead those dead weight losses arise. (4 marks) ( 3 + 3 + 4 = 10 marks )
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