Suppose that a monopoly producer of a patented software product (e.g. financialsoftware)faces the following demand function for its product: q^D = 1000 -2P
where q measures monthly quantity demanded and P is the price per unit. The firm’smonthly short-run cost function, which relates total cost ($ TC) to output (q), is given by the following quadratic cost expression: TC = 2000 + 10q + 0.05q^2
a. Given this information, determine the firm’s optimum output, price, revenue, cost and profit. Illustrate the firm’s financial position using the per-unit cost and revenue functions.
b. Now assume this market can be modeled as Perfectly Competitive. Determine and illustrate the market equilibrium price and quantity, consumer and producer surplus, and the deadweight loss (DWL) from monopoly.