Let say the inverse demand curve for K-pop music is characterized by: P = 1- 1/100Q. Where Q is the number of MP3's sold (in thousands) and P is the price per song. Additionally all firms have a constant marginal cost of: MC = 0.10
(a) If the industry was perfectly competitive, what is the market equilibrium price and quantity?
(b) Draw the perfectly competitive industry (i.e. draw the inverse demand curve, MC and label the equilibrium price and quantity). Graphically and mathematically tell me what consumer and producer surplus would be
(c) Suppose that SM entertainment monopolizes the K-Pop industry, tell me what price and quantity this monopolist will charge
(d) On the same graph done in (b), depict the MR curve/ and the answer from (c). Now tell me graphically and mathematically what consumer and producer surplus would be under the monopoly structure
(e) Compare your answer in (d) and (b). How big is the deadweight loss of the monopoly?