Question 2

Consider a monopolist with a demand equation P = 60 - 2Q, where P is the price in dollars and Q is the quantity. The monopolist is able to produce the output with a constant marginal cost of $20 which is equals to the average total cost. Assume that there is no fixed cost.

(a) If the monopolist practice single pricing, determine the price, quantity, profit, consumer surplus and producer surplus in this market with the aid of a suitable diagram. Appraise the efficiency in this market. (15 marks)

(b) If the monopolist were to practice perfect price discrimination, determine the quantity, profit, consumer surplus and producer surplus of the monopolist. Appraise the efficiency in this market. (15 marks

(C) Consumers and the society are always worse off in a monopolised market compared to a perfectly competitive market. Do you agree? Examine the two (2) market structures and explain with the help of a suitable market diagram. (