A sushi company, Fast Fin, has a monopoly on sushi in the local market. The demand...

A sushi company, Fast Fin, has a monopoly on sushi in the local market. The demand for sushi is given by:QD= 40−2P⇒P= 20–(1/2)Q. The resulting marginal revenue function isMR(Q) = 20−Q. Fast Fin’s marginal cost of producing sushi isMC(Q) = 2 +Q and total cost equals 2Q + (Q2)/2.

a. Calculate Fast Fin’s profit maximizing output as well as profits.

b. Calculate the monopolist percent markup over marginal cost ( P −MC )/ P and verify that the markup is equal to −1/ED , where ED is the elasticity of demand. Provide intuition for the mathematical relationship between monopolist markup and consumer demand elasticity.

c. Calculate the deadweight loss that results from Fast Fin’s monopoly power as well as the changes in consumer and producer surplus (relative to the perfect competition benchmark).

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Expert Solution

Rahul Sunny answered 7 months ago

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