Suppose an industry has potential firms with identical technologies with TC = 200 + 2Q2. The demand curve in this industry is D(p) = 18 - ¼ p.
a. What is the AC minimizing quantity for a single firm?
b. If demand is 18 - 1/4p, how many firms could this market support if it were perfectly competitive? Explain.
Now assume that there is one monopoly firm in this market, and we will treat its costs as sunk. So the costs are TC = 2Q2 and D(p) = 18 - ¼ p (meaning inverse demand p = 72 - 4q).
a. What is the profit maximizing quantity for this monopolist to produce?
b. What is the price at this quantity?
c. What is the deadweight loss from production (remember: there are no fixed costs)?