Question 4

Consider a single price monopolist.

Scenario B: the monopolist's inverse demand curve is P=180-3Q , and marginal cost and average cost are as follows: MC=AC=30.

Based on the above information, answer the following questions:

1. Diagrammatically represent the monopolist's demand, MR, and MC curves. (Note: You must make use of the equations when drawing your diagram and appropriately mark the lengths of relevant intercepts)
2. Calculate the monopolist's profit maximising price and quantity, and show them on your diagram for part (b). Show your workings.
3. Show the monopolist's profit on your diagram for part (c). Calculate the consumer surplus and monopolist's producer surplus attained.
4. Now, suppose that the monopolist decides to practice perfect price discrimination. Determine the profit maximising quantity, and show your working.
5. Critically analyse the accuracy of the following statement.

"The single-price monopolist achieves the socially efficient outcome by earning a higher level of profit compared to the perfectly price discriminating monopolist."

[1+3+3+3+1+3 =14 marks]