monopolist faces a market demand curve given by: Q = 80 - p Assume that the monopolist has a cost structure where total costs are described by: C(Q) = 0.25Q2 - 5Q + 1000. Question a: What output level would be socially optimal? What is the price at this output level, if all units are sold at the same price? What is the profit? Question b: If government regulation forces the firm to set its price equal to its average cost of production, what will the output level be? What is the price at this output level, if all units are sold at the same price? What is the profit? What would the social welfare gain
A monopolist faces a market demand curve given by: Q = 80 - p
Assume that the monopolist has a cost structure where total costs are described by: C(Q) = 0.25Q2 - 5Q + 1000.
Question a: What output level would be socially optimal? What is the price at this output level, if all units are sold at the same price? What is the profit?
Question b: If government regulation forces the firm to set its price equal to its average cost of production, what will the output level be? What is the price at this output level, if all units are sold at the same price? What is the profit? What would the social welfare gain or loss be from this output level compared to the outcomes in (a)?
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