Use the following set-up for all parts of question 5 (i.e., parts a through e). A...

Use the following set-up for all parts of question 5 (i.e., parts a through e). A monopolist produces its product at a constant average cost and marginal cost of $20 (i.e., AC=MC=20). The market demand for its product is

P = 70 – 0.2Q

and so its marginal revenue is

MR= 70 – 0.4Q

where P is the price per unit of the product and Q is the number of units.

Suppose that the monopolist must charge the same price on each unit sold. What is the profit-maximizing quantity and price? What is the profit? You must show your step-by-step calculations to receive credit.

If this market were perfectly competitive, what would be the quantity and price? What would be the profit? You must show your step-by-step calculations to receive credit.

Explain in words: Why is there deadweight loss with the monopoly market structure?

Describe a specific government intervention than can reduce the deadweight loss in this market.

Solutions

Expert Solution

Rahul Sunny answered 1 year ago

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