Imagine that the perfectly competitive market described in Chapter 7, Problem S1, was transformed into a pure monopoly. (What were formerly independent small firms are now production units owned by the monopolist.) The cost structure of the typical unit continues to be given by C = 25 + Q² − 4Q, and industry demand is: Q = 400 − 20P or, equivalently, P = 20 − .05Q. Currently, the monopolist has 30 production facilities in place.

a. Create a spreadsheet similar to the example shown. Enter numerical values for cells B14 and C8; all other cells should be linked by formulas to these two cells.

b. In the short run, the monopolist can change output level Q_F but cannot vary the number of production facilities. Use the spreadsheet optimizer to maximize the firm’s short-run profit.

c. In the long run, the monopolist can change output levels Q_F and the number of production facilities. Use the spreadsheet optimizer to maximize the firm’s long-run profit.

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Monopolist Controls the Market The Industry Output Plants Price MR Tot Profit 180 30 870 10 The Typical Production Unit Cost 12 13 14 15 16 17 18 MC 37 6.17 Short Run: Maximize total profit: Adjust: Q Maximize total profit. Adjust QF & # Firms Long Run