34. Consider a monopolist with a MC curve of MC = q, where q is the quantity produced. The

demand curve in the market is given by qd = 20 - 2P, where P is the market price. If the monopolist

charges a linear price (that is, does not engage in price discrimination and just charges the same

price to everyone), what is the deadweight loss?

a. 2.5

b. 5

c. 2.083

d. 7.5

e. 10

Short answer:

. Consider a monopolist selling into a market with a demand curve of P = 100 - q. The monopolist

has a marginal cost of $20 per unit and a fixed cost of $100.

a. If the monopolist charges a linear or single price, what are its price, quantity and profit? What is

the resulting DWL? Show on a diagram.

b. What if the monopolist gets taxed by the government at a per unit rate of $20. Now what are the

monopolist's price, quantity and profit? What is the resulting DWL? Explain your answer.

c. Now assume that instead of the per-unit tax, the government imposes a profits tax at a rate of

50%. What is the outcome in this case? Explain.