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Consider a monopoly with inverse demand given by P(q) = a bq and cost function c(q) = cq, where a > c > 0 and

Consider a monopoly with inverse demand given by P(q) = a bq and cost function c(q) = cq, where a > c > 0 and b > 0 are parameters, and q is the quantity supplied by the monopoly.

  1. What would be the profit-maximizing price and output?
  2. What would be the output and the welfare loss compared to the competitive outcome? Illustrate the welfare loss graphically

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