Questions 7 through 9 consider a market served by a monopolist.

Please include graphs for question 7 and 8 and make sure to label the graphs.

Question 7

7) Assume that a monopolist is facing a linear demand given asQ_d= 180 - 0.5P, and that their marginal cost is represented by a linear functionMC = 0.5Q(this is a simplifying assumption so that you do not have to graph quadratic equations). Additionally, assume that the monopolist is required to sell their product at a uniform price.

• If the firm is free to choose its own priceP_mand quantityQ_m, graphically depict this monopoly equilibrium price and quantity. Your graph should include the demand curve, marginal cost curve, and any other curves necessary to identify the equilibrium price and quantity.
• Indicate numerically all relevant intercepts for your demand and marginal cost curves on your graph.
• Compute and clearly indicate on the graph the exact monopolist equilibriumP_mand quantityQ_mthat you depicted graphically.
• Compute and clearly indicate on the graph the socially optimal priceP_SOCand quantityQ_SOCin this market. For this computation, you may assume that the marginal cost curve of the monopolist represents the sum of marginal costs of individual firms.

Note that you will reuse this graph as the basis of your graphical analysis in Questions 8 in this exam.

Question 8

8) Using the graph, you produced in your answer to Question 7:

• Graphically identify and label the consumer surplus (CS_m), producer surplus (PS_m), and deadweight loss (DWL_m) when the monopolist sellsQ_munits at priceP_m.
• Compute and label thenumerical valuesof the consumer surplus (CS_m), producer surplus (PS_m), and deadweight loss (DWL_m) when the monopolist sellsQ_munits at priceP_m. Please remember to indicate the units in which consumer surplus, producer surplus, and deadweight loss are measured.

Question 9

9) Briefly explain why it is that the monopoly equilibrium results in a deadweight loss. Suggested response volume: 2-4 sentences or 1 paragraph.