Question 1. Consider a monopoly. The market demand, marginal cost and average total cost for this monopoly are given below.
Market Demand: P = 200 – 2Q
Marginal Cost: MC = 40 (assume there are no fixed costs)
Average Total Cost: ATC = 40
a. If this monopolist acts as a single price monopolist what price will it charge and how many units of the good will the monopolist produce given the above information?
b. If this monopolist is a single price monopolist what will the level of its economic profits be?
c. Calculate the value of consumer surplus, producer surplus, and deadweight loss for this single price monopolist.
d. Suppose this monopolist practices first degree price discrimination. How many units of the good will the perfect price discriminating monopolist produce? Explain this choice of output.
e. What is the value of producer surplus when the monopolist practices first degree price discrimination? What are the perfect price discriminator’s profits?