Flint Cable has a contract to be the sole provider of cable TV services to Avon County. Suppose Flint faces an inversedemand of P = 200 - 0.005Q, where P is the price per month for cable service and Q is the number of households that buy cable. Flint has total costs C = 100Q.

1. Find the profit maximizing price and output combination. What can you say about the elasticity of demand at this point, without calculation? Why? Verify by calculating the elasticity of demand at the profit-maximizing price.
2. What would be the output and price at a perfectly competitive equilibrium, assuming that the perfect competitors all had the same costs as the monopolist?
3. Sketch the two equilibria on the same graph. Calculate consumer and producer surplus under each market structure. What is the deadweight loss?
4. Suppose Flint's contract with Avon County is coming up for renewal. How much might Flint spend on lobbying to keep its monopoly? Would this affect the loss associated with monopolization of the market? Explain.