Question 5 Belia

It is often argued that Monopolists, or firms with market power, should maximize the total surplus created and then develop pricing strategies to capture this surplus. Surplus is created when the amount consumers are willing to pay for a product (the height of the demand curve) exceeds the marginal cost of producing a product.

Consider the case where a monopolist's inverse demand function equals P = 30 -2Q, and the firm's total costs are given by C(Q) = (1/2)Q2, which results in a marginal cost equal to Q. The following illustration depicts the output that maximizes total surplus. This output is economically efficient.