suppose a monopolist faces the following demand curve: P=100-3Q. Marginal cost o

Question

suppose a monopolist faces the following demand curve: P=100-3Q. Marginal cost of production is constant and equal to $10. and there are no fixed costs. A) (2 points) What is the monopolists profit maximizing level of output? B) (2 points) What price will the profit maximizing monopolist charge? C) (2 points) How much profit will the monopolist make if she maximizes her profit? D) (2 points) What is the value of consumer surplus? E) (2 points) What is the value of the deadweight loss created by this monopoly?

Explanation / Answer

TR = 100Q - 3Q2

MR = 100 - 6Q

At profit maximizing level of output,

MR = MC

100 - 6Q = 10

A) Q = 15

B) P = 55

C) Profit = 100Q - 3Q2 - 10Q = 675

D) CSM = 1/2(100 - 55)*15 = 337.5

P in competitive market = MC = 10

Q in competitive market = 30

CSC = 1/2(100 - 10)*30 = 1350

Producer surplus in competive market = 0

Producer surplus in monopoly = (55 - 10)*15 = 675

E) DWL = (1350 + 0) - (337.5 + 675) = 337.5

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