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A monopolist faces the inverse demand for its output: p = 30-Q. The monopolist also has a constant marginal and average cost of $4/unit.
(a) What is the monopolist's pro?t-maximizing level of output? What is the monopolist's pro?t at this level of output?
(b) What is the consumer surplus? Show it in a graph along with the monopolist's equilibrium; label the monopolist's equilibrium eM.
(c) What would the competitive equilibrium be if the demand curve were the same as the one faced by the monopolist and the market supply curve were equal to the monopolist's marginal cost, i.e. P = MC? Show this equilibrium in the same graph as above and label it eC.
(d) What is the gain in consumer surplus if this market were perfectly competitive instead of a monopoly?
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