Assume a monopolist faces a market demand curve P = 100 2Q, and has the followin

Question

Assume a monopolist faces a market demand curve P = 100 2Q, and has the following cost functions:

T C = 640 + 20Q; MC = 20.

What is the profit-maximizing level of output? What are profits? Graph the marginal revenue, marginal cost, and demand curves, and show the area that represents deadweight loss on the graph.

What would price and output be if the firm priced at socially efficient (competitive) levels? What is the magnitude (calculate the area of the triangle) of the deadweight loss caused by monopoly pricing?

Explanation / Answer

Assume a monopolist faces a market demand curve P = 100 2Q, and has the followin

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