Question 4 (6 marks)

a) Suppose that market demand for a good is Q = 480 - 2p. The marginal cost is MC = 2Q. Calculate the deadweight loss resulting from a monopoly in this market. (4 marks)

2

b) Suppose a firm has the following total cost function: TC = 100 + 4q . What is the

minimum price necessary for the firm to earn profit? Below what price will the firm shut down in the short run? (2 marks)