P = 5,805.56 - 3,055.56Q

In the above, P is in dollars ($) and Q is in ounces. So, the information we have is:

• The inverse demand curve is P = 5,805.56 - 3,055.56Q
• The observed Price and Quantity are Q = 1 ounce, P = $2,750
• Marginal cost is constant at MC = $1,500 per ounce
• Marginal revenue is given by P = 5,805.56 - 6,111.11Q

2. aGiven the information above, prove that the drug dealer was neither perfectly competitive, nor a monopolist.

Observed price: $2,750 per ounce

Price under perfect competition: $______________ per ounce

Explanation of how you obtained that result (can be short):

Price under monopoly: $______________ per ounce

Show your work (including calculations):

2. b Calculate the deadweight loss from monopoly

Calculate the deadweight loss of monopoly, compared to perfect competition. first calculate total surplus under perfect competition. Then calculate total surplus under monopoly. Finally, subtract the (smaller) total surplus under monopoly, from the total surplus under perfect competition.

Deadweight Loss from Monopoly: $__________________________

2.c Calculate the deadweight loss from imperfect competition

This time, I want you to calculate the deadweight loss under our drug dealer (P = $2,750/ounce, Q = 1 ounce), compared to perfect competition. first calculate total surplus under perfect competition. Then calculate total surplus under our drug dealer. Finally, subtract the (smaller) total surplus under our drug dealer, from the total surplus under perfect competition.

Deadweight Loss from imperfect competition: $__________________________