Consider a monopoly who produces a good X with the following details: (total fixed cost) T F
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Question:
Consider a monopoly who produces a good X with the following details: (total fixed cost) T F C = $1000,(marginal cost) MC = $2 (constant), P = 10 − 2Q.
(a) Calculate the monopolist’s equilibrium level of output and prices.
(b) What would have been the output and prices if this were a perfectly competitive firm?
(c) From (a) and (b), which price is the efficient price. Why? Calculate the welfare loss due to monopoly and show it graphically.
(d) If the monopolist were to engage in ‘rent-seeking behavior’, what is the maximum he would spend on it?
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