The firm A&B produces high-quality widgets with a cost equal to C(qi) = 2qi. The demand for widgets
Is QD =100−P.
(a) Suppose the firm A&B is a monopolist. What is the profit-maximizing price and quantity? How much profit does the firm collect?
(b) How much consumer surplus does the firm generate? What is the deadweight loss?
(c) Suppose consumers cannot see the differences between high- and low-quality widgets before purchasing them. What is the quantity sold by firm A&B if the price of low-quality widgets is $1?
(d) Suppose consumers cannot get any utility of low-quality widgets. Therefore, if they were aware and could distinguish between high- and low-quality widgets, they would purchase the high-quality widgets, regardless of the price of the low-quality widgets. How much is the firm A&B willing to pay to inform consumers about the differences between high- and low-quality widgets? How can the firm A&B achieve that?