Consider a profit-maximizing monopolist and suppose that market demand is given by: ()=100. Suppose further that its marginal and average costs are constant and equal to 40/unit of output.

a.By how much would the monopoly price exceed the price in case the market structure would be one of perfect competition, all else equal?

b.Now suppose the monopolist can invest in process innovation that would reduce its marginal and average costs per unit of output to 20. Suppose this would require an up-front investment of I. Solve for the most that the monopolist would spend on innovation in this situation.

c.Show that in this case the cost-reducing innovation ceteris paribus yields a greater profit increase when the above market structure would be one of perfect competition independent of the value of I.Explain.