The weekly cost functions of the only plumber in town are: TC = 40 Q + Q2 MC = 40 + 2 Q

The weekly demand that this monopolist plumber faces has been estimated as follows: Qd = 50 – 0.25 P where Q is the average weekly number plumbing jobs performed and P represents the average price of each job.

a. Determine the profit maximizing price and the quantity of the plumber.

b. What would be his (maximum) profit?

c. What would be the market power (Lerner index) of this firm?

d. If the government wants to force this plumber to act as a perfectly competitive firm (by imposing a price ceiling on plumbing services), what should that price ceiling be? Would the plumber still make a profit? What would be his profit?

e. Comparing the monopolistic price and competitive price, could calculate the deadweight loss resulting from monopoly pricing?

Answer rating: 100% (QA)

a To find the profitmaximizing price and quantity we need to equate marginal cost MC and marginal ... View the full answer