Question
ADM Co. is a monopoly in the corn syrup industry. The market demand for corn syrup is p = 55-2Q, and the firm's cost function
ADM Co. is a monopoly in the corn syrup industry. The market demand for corn syrup is p = 55-2Q, and the firm's cost function is C(Q) = 100-5Q+Q2.
a.) What is the profit maximizing price and quantity for ADM? How much profit and consumer surplus does ADM generate?
b.) If ADM acts like a perfect competitor under the same demand and cost functions, what profit and consumer surplus would be generated? What is the size of deadweight loss from the monopoly?
c.) Concerned about the high price under monopoly, suppose the government sets the price ceiling at $27. How does this affect the price, quantity, consumer surplus and profit? What is the resulting deadweight loss? Explain the effect of price ceiling on social welfare under monopoly.
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