Imagine a monopolist that has fixed costs but no variable costs (thus there are no marginal costs, so MC = 0). For example, consider a firm that owns a spring of water that can produce indefinitely once it installs certain pipes, in an area where no other source of water is available.
a. Draw a downward-sloping demand curve for water, its associated MR curve, and the monopolist's MC curve.
b. On your diagram, show the monopolist's profit-maximizing price and level of output.
c. At the monopolist's profit-maximizing level of output, what is the marginal value of this good to society, and how does it compare with the marginal cost?