1. The demand for a certain good is given by the following equation: D(p) = 10 -

Question

1.
The demand for a certain good is given by the following equation:
D(p) = 10 - p.
The technology that can be used to produce this good is described by the cost function:
c(y) = 2y.

(a) Suppose there is a monopoly in the market.
What is the optimal quantity produced ? What is the monopoly price?
Denote optimal quantity and price with y*m, p*m.
Represent the equilibrium in a graph in the (y, p) axis.
(b) Compute the monopolist’s profits and indicate them in your graph.
(c) Suppose our monopolist decides to behave as a competitive firm.
What would be the quantity produced and the price charged in this scenario? Denote them with y*c, p*c
(d) Compute the deadweight loss associated with the monopoly and indicate it in your graph.

Explanation / Answer

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