Question
Consider a monopolist in an industry where the inverse demand curve is given by P = 100 0.5x10Q meaning its marginal revenue curve is MR
Consider a monopolist in an industry where the inverse demand curve is given by
P = 100 0.5x10Q
meaning its marginal revenue curve is MR = 100 10Q
This firm's marginal cost curve is given by MC = 2Q
Don't worry if your answers to this question do not give an integer, in those cases report your answer to two decimal places.
1. Produce a hand-drawn diagram which shows the inverse demand curve, the firm's marginal revenue curve, and the firm's marginal cost curve.
2. What is the profit maximizing level of output for your monopolist? Illustrate this point on your diagram. What price does the monopolist charge?
3. Suppose your firm was run by a benevolent social planner. How much would it produce? Illustrate this point on your diagram.
4. Calculate the deadweight loss of monopoly in this industry. Illustrate the area that represents this deadweight loss on your diagram.
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