In Merageville, a monopolist has taken over the gasoline market! The demand curve remains the same

as before: if the price of gasoline is zero, daily quantity demanded is 1000 gallons. For every increase in

price of 10 cents, daily quantity demanded drops by 10 gallons.

1. Compute the marginal revenue curve as quantity increases by every 100 gallons, and sketch out

this line on a graph, along with the demand curve.

The marginal cost curve for this monopolist is the same as the old supply curve: At a price of zero,

marginal cost is zero, but for every increase in quantity of 15 gallons, marginal cost increases by 10

cents.

2. Sketch out this marginal cost curve on the same graph.

3. Find the quantity at which marginal revenue equals marginal cost.

4. What price will the monopolist charge?

5. What is the transfer from consumers to the producer?

6. What is the deadweight loss to consumers?

7. What is the deadweight loss to the monopolist?

8. Confirm that, despite the deadweight loss, the monopolist likes being a monopolist.