Econ question:

Problem 3 Dayna's Doorstops Dayna's Doorstops, Inc. (DD) is a monopolist in the doorstop industry. Its cost is TC = 100 5Q + Q2, and (inverse) demand is P = 55 2Q. A. What price should DD set to maximize prots? What output does the rm produce? How much prot and consumer surplus does DD generate? B. What would output be if DD acted like a perfect competitor and set MC = P? What prot and consumer surplus would then be generated? C. What is the deadweight loss from monopoly power in part A (i.e., the difference between the total welfare under the two scenarios)? [Hintz for each of D., E., and F., check whether the rm would be willing to supply the quantity demanded at the respective price. Remember that the rm will only supply if MCSP. If MC>P, you need to compute the quantity that the rm would supply, i.e., where MC=P, and this may be smaller than quantity demand, so that there is a shortage. Drawing the demand and MC graph is not compulsory, but might help you understand the resulting equilibrium.] For the remainder suppose that DD acts as a prot-maximizing monopolist. D. Suppose the government, concerned about the high price of doorstops, sets a maximum price at $27. How does this affect price, quantity, consumer surplus and DD's prots? What is the resulting deadweight loss? E. Now suppose the government sets the maximum price at $23. How does this decision affect price, quantity, consumer surplus, DD's prot, and deadweight loss? F. Finally, consider a maximum price of $12. What will this do to quantity, consumer surplus, prot and deadweight loss? Assume that DD will incur the xed cost even if Q=0