Question
Suppose a market is characterized by inverse demand P = 400-2Q. The marginal revenue curve associated with this market is P=400-4Q. Marginal cost is constant
Suppose a market is characterized by inverse demand P = 400-2Q. The marginal revenue curve associated with this market is P=400-4Q. Marginal cost is constant at MC=4.
A) Solve for equilibrium price and quantity if the market is characterized by perfect competition. (5 marks)
B) Determine consumer and producer surplus associated with part A). (5 marks)
C) Solve for the equilibrium price, quantity and profits if the market is characterized by a monopoly. (5 marks)
D) What is the deadweight loss associated with monopoly? What does it represent? (5 marks)
E) Can you think of any strategies the firm could employ to increase profits? If so, what strategies? (5 marks)
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