Question: Consider a natural monopoly with cost function C = 500 + 20Q and facing market demand Q = 100 - P. (a) If price is

Consider a natural monopoly with cost function C = 500 + 20Q and facing market

demand Q = 100 - P.

(a) If price is set according to marginal cost, what is monopolist's profit?

(b) The answer to part (a) implies that MC-pricing has a serious problem in case of

natural monopolies. Suppose that AC-pricing is employed; find price, output and

the deadweight loss compared to part (a).

Consider a monopoly firm with the following demand and cost functions: demand: Q(P) = 2000 - 20P , cost C(Q) = 0.05Q' + 10000(a) Calculate the monopolist's profit-maximizing quantity and price. (b) Calculate the socially optimal (or competitive equilibrium) quantity and price. (c) Calculate the welfare (deadweight) loss associated with the monopoly. (d) Indicate the welfare loss area from part (c) in a suitable figure.

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