A monopolist faces inverse demand curve P = 120 - Q and produces output at constant marginal cost MC = 20. The monopolist has fixed cost of production FC = 1000.

a) What is the firm's average cost function?

b) Verify that this industry is a natural monopoly by comparing the cost of producing Q

units of output at a single plant with the cost of producing Q units of output by producing

Q/2 units at each of 2 plants.

c) Find the optimal Ramsey price.