Assume the industry demand for a product is P = 1,000 - 20Q. Assume that the marginal cost of product is $10 per unit.
a) What price and output will occur under pure competition? What price and output will occur under pure monopoly (assume one price is charged to all customers)?
Pure competition: Price = $10 and quantity = 49.5.
Pure monopoly: Price = $505 and quantity = 24.75.
b) Draw a graph that shows the lost gains from trade that result from having a monopoly.