A single monopoly firm faces the market demand of P = 90 − 2Q. Its cost function is characterized as C = Q2 + 100.
a. Characterize the marginal revenue function. Plot the demand, marginal revenue and marginal cost curve.
b. Characterize the equilibrium price and quantity for the firm.
c. Calculate the consumer surplus, producer surplus and producer profit in this model.
d. Assume the market now becomes a perfect competitive market by allowing free entry and exit of firms, (which has the same cost function as the monopoly firm). Recalculate the market equilibrium in the long run.
e. Compare the different market outcomes of the competition and the monopoly market. In particular, compare price, quantity, consumer surplus, producer surplus and producer profit.