Assume in the monopoly-versus-competition example in the text, where demand is Q= 100-P and MC=AC=$20, that MC under competition remains at $20. However, assume that the reason the monopoly can continue to be a monopoly is that it pays $10 per unit of output to reimburse lobbyists for their efforts in persuading legislators to the monopoly insulated from competition. For example, the lobbyists may be generating (false) studies that demonstrate that competition results in higher costs.
a. Calculate the price and quantities under monopoly and competition
b. Calculate total economic surplus under monopoly and competition. The difference is the social cost of monopoly
c. the social cost of monopoly can be disaggregated into two types of cost: resources cost of rent seeking and the usual deadweightloss of output restriction. What are their magnitudes?