Question
Suppose a monopoly faces a demand curve described by P = 30 - 3Q and has a marginal cost MC = 10 + 2Q. In
Suppose a monopoly faces a demand curve described by P = 30 - 3Q and has a marginal cost MC = 10 + 2Q. In class you calculated the total surplus generated by the monopoly and compared it with the total surplus under the assumption the market would be competitive. Based on your findings the Dept. of Justice, Antitrust division takes the industry to court, claiming that the court should break up the monopoly. Counsel for the defense argues that, in the absence of monopoly power, the supply curve would actually be P = 15 + 2Q. Why might the defense argue this, and if the defense is right, would that argument be sufficient to justify a ruling in their favor? Please be specific - the full answer implies a numerical assessment.
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