1) Consider a firm which is a monopolist because it has a patent on a specialized medical...
Question:
1) Consider a firm which is a monopolist because it has a patent on a specialized medical tool. Its fixed costs are $5000. Its variable costs are 400q (so its marginal cost is equal to 400). The firm faces a demand of q = 500 .25p This equivalent to an inverse demand of p = 2000 4q, so its marginal revenue is M R(q) = 2000 8q). (a) Calculate the price and output that maximizes the firm's profits (the monopoly price and quantity). (b) Calculate the firm's total profit at the profit-maximizing price. (c) Draw a graph of the firm's inverse demand, marginal revenue, and marginal cost. Label the intercepts on the vertical axis. Label the producer surplus, the consumer surplus, and the dead weight loss. (d) What is the price that maximizes consumer plus producer surplus? What is the consumer surplus at this price?