Question 1:

Describe the equilibrium of a monopoly, and contrast it with that of perfect competition. Which market is more efficient? Explain your answer.

Question 2:

Suppose a monopolist faces a demand curve P= a-Q. The monopolist incurs average cost (AC) which equals his marginal cost (MC). Let assume that AC=MC=c. If the monopolists marginal revenue (MR) is given by the equation MR=a-2Q then answer the following questions:

1. a) Calculate the monopolists total revenue (TR) and total cost (TC).
2. b) Suppose this monopolist is not allowed to discriminate the price then what will be his profit maximizing output level? What will be the monopolists total profit and price at the profit maximizing output level?
3. c) Suppose this monopolist knows exactly whose reservation price is what and starts price discrimination (first degree) then what will be the output level the monopolist produce and what will be total profit at that level of output?
4. d) Compare your answers of (b) and (c) and explain which one gives the monopolist a higher level of profit.

Question 3:

The elasticity demand plays a crucial role in determining the incidence of tax between buyers and sellers. Please explain this statement with appropriate diagrams.