A monopolist is facing the following demand and cost functions:

P = 24 - 2Q;

TC = 10 + 2Q2

MC = 4Q;

MR = 24 - 4Q

(a) If the firm was operating in a perfectly competitive market, what would be the firm's price and profit-maximizing quantity? Calculate the firm's profit or loss. (6 marks)

(b) If the firm was operating as a monopoly, what would be the firm's price and profit-maximizing quantity? Calculate the firm's profit or loss. (6 marks)

(c) Compute the price elasticity of demand at the profit-maximizing level of output for the monopolist. (2 marks)

(d) What is the monopolist's percentage markup of price over marginal cost? (2 marks)

2. Determine the "rule-of-thumb" price when the monopolist has a total cost of TC = 10 + 25Q, MC = 25, and the price elasticity of demand is - 3.27. (3 marks)

3. Consider two firms facing the market demand curve P = 500 - Q, where P is in $/unit, Q is total output, Q = (Q1 + Q2 ), Q1 is the output of firm-1 and Q2 is the output of firm-2.

Two firms have the same constant average and marginal costs, AC = MC = 20.

The firms' marginal revenue functions are: MR1 = 500 - 2Q1 - Q2; and MR2 = 500 - Q1 - 2Q2; respectively.

Suppose (as in the Cournot model) that each firm chooses its profit-maximizing level of output on the assumption that its competitor's output is fixed.

I. Find each firm's "reaction function". (6 marks)

II. What will firm-1 and firm-2's output be? (3 marks) III. What will industry output and price be at equilibrium in this model? (2 marks)