Suppose that in a city there are 100 identical self-service gasoline stations selling the same type of gasoline. The total daily market demand function for gasoline in the market is QD = 60,000 - 25,000P, where P is expressed in dollars per gallon. The daily market supply curve is QS = 25,000P for P >$0.60.
(a) Determine algebraically the equilibrium price and quantity of gasoline.
(b) Draw a figure showing the market supply curve and the market demand curve for gasoline, and the demand curve and the supply curve of one firm in the market on the assumption that the market is nearly perfectly competitive.
(c) Explain why your figure of the market and the firm in part (b) is consistent.
(d) Suppose that now the market is monopolized (e.g. a cartel is formed that determines the price and output as a monopolist would and allocates production equally to each member). Draw a figure showing the monopolist's equilibrium output and price.
(e) How many gasoline stations would the monopolist operate?
(f) Can we say that the monopoly leads to a less efficient use of resources than perfect competition? What is the amount of deadweight loss, if any?