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Question 4 Consider a single pricing monopolist with a demand equation P = 60 - 2Q. It encounters a constant marginal cost of $20 which is also...
Question 4
Consider a single pricing monopolist with a demand equation P = 60 - 2Q. It encounters a constant
marginal cost of $20 which is also equals to the average total cost.
(a) Identify the optimal price and quantity for the monopolist. Illustrate your answers with a suitable
diagram. (7 marks)
(b) Identify the profit and the consumer surplus of the monopolist at the optimal output. (6 marks)
(c) Compare to a perfectly competitive market. If this market were to be a perfectly competitive
one, what is the equilibrium price and quantity? Illustrate your answer with a suitable diagram.
(7 marks)
(d) Compare to a perfectly competitive market, calculate the deadweight loss of the monopoly. (5
marks)
