Suppose a monopolist faces the following demand curve: P = 280 - 6Q. The long ru

Question

Suppose a monopolist faces the following demand curve: P = 280 - 6Q. The long run marginal cost of production is constant and equal to $52, and there are no fixed costs. A) What is the monopolist's profit maximizing level of output? B) What price will the profit maximizing monopolist produce? C) How much profit will the monopolist make if she maximizes her profit? D) What would be the value of consumer surplus if the market were perfectly competitive? E) What is the value of the deadweight loss when the market is a monopoly?

Explanation / Answer

Answer :- P = 280-6Q

MC= $52

A) TR = 280Q - 6Q2

MR = 280 - 12Q

MR = MC, FOR EQUILIBRIUM QUANTITY

Q = 19 UNITS

B) PRICE

WE HAVE Q = 19 UNITS. put this valuer in P = 280 - 6Q,we have

P = $166.

C) profit = TR - TC => [ 280 (19 ) - 6 (19)2 ] - [ 52 * 19 ]

Profit = $2166

D) Consumer Suroplus in perfectly competitive markets ,

in this case , because Price = MR = MC

so Price is $52. and putting this value in demand curve, we get Q = 38 units.

Because CS is area above price line and below dem,and curve , therefrore, CS is 1/2*38*228 = $4332.

E) Deadweight loss in case of monopoly would be the suplus left when we move from perfect competition to monoploly.

so DWL = total surplus in perfect competition - total surplus in monopoly.

we would get DWL = $1083.

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