Assume that a monopolist sells a product with a total cost function:

TC=1000 + 500Q + Q²

The market demand curve is given by the equation: Q = 500 - 0.25P

A. What price and quantity would be expected if the firm can operate completely unregulated?

B. The firm has asked you to recommend a price and quantity that would be socially efficient. Recommend a price and quantity to the firm.

C. When moving from the socially efficient price and quantity to the monopoly solution:

a. How does consumer surplus change?

b. How does producer surplus change?

c. What is the social cost of the monopoly solution?

D. Calculate:

a. The monopoly rents

b. The Lerner Index of Monopoly Power. Calculate the Lerner Index using both the P-MC formula and the elasticity formula.

E. Graph the information answered in parts (a)-(b).

Answer rating: 100% (QA)

A If the monopolist operates without regulation the expected price and quantity can be calculated by ... View the full answer