Monopoly with linear inverse demand. Consider a monopolist facing a linear inverse demand curve p(q)= a-...

Monopoly with linear inverse demand. Consider a monopolist facing a linear inverse demand curve p(q)= a- bq, and cost function C(q)= F + cq, where F denotes its fixed costs and c represents the monopolist's (constant) magical cost a>c

1. Graph demand, marginal revenue and marginal cost. Label your graph carefully, including intercepts

2. Solve the profit maximizing output q^m. To do this, first write down the expression for MR=MC and solve for the optimal quantity. Next find the price that consumers are willing to pay for qM using the demand curve.

3. Write the expression for monopoly profits in terms of parameters a, b, F, and C/

4. Show q^m, p^m, and π^m on your graph

5. Write an expression for quantity, price, and profits under perfect competition

Solutions

Expert Solution

Rahul Sunny answered 1 year ago

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