A monopolist faces a demand of D(P) = 400−(1/5)P and constant marginal costs: TC(Q) = 1,000Q. 1. Calculate the optimal price, quantity and total profit of the monopolist. 2. Derive the dead weight loss created by the monopolist and illustrate graphically. 3. Repeat questions 1) and 2) but now assume that the market is perfectly competitive (marginal cost pricing)
A monopolist faces a demand of D(P) = 400−(1/5)P and constant marginal costs: TC(Q) = 1,000Q.
1. Calculate the optimal
2. Derive the dead weight loss created by the monopolist and illustrate graphically.
3. Repeat questions 1) and 2) but now assume that the market is
4. Take the
5. Still in the monopoly case, assume that, instead of the maximum price, the government gives producers a per unit subsidy of $1,000. Discuss the welfare effects of this measure.
6. Suppose the market is perfectly competitive—as in 3)— and the government gives producers a per unit subsidy of $1,000. What is the welfare effect of this subsidy? Compare your answer with 5).
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