Monopoly and Perfect Competition
Industrial Organization
Suppose a monopoly faces a demand function given by P = 100 - Q and it can produce any quantity of a the good at a constant marginal cost of $20.
(a) Find the quantity produced and the price charged by the monopoly.
(b) Compute the profit of the monopoly.
(c) Compute the quantity that would be produced in the market if it was a perfectly com- petitive market.
(d) Compute the efficiency loss due to monopoly.
(e) (Bonus points) Suppose now that total cost is TC = 375+20Q and that the firm is forced to use average cost pricing. Find the optimal quantity for the firm and the price it will charge. Can the firm survive this policy?