Suppose that the inverse demand curve

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Suppose that the inverse demand curve is: p(q) = a − bq, and the cost function is: c(q) = cq.

(d) If the monopolist can only set a linear price (that is, a fixed price per unit sold), what price will it set? How much consumer surplus and producer surplus is generated at that price and quantity? Illustrate the deadweight loss in this case.

(e) If the monopolist can charge a two-part tariff, where it charges a fixed fee to consume anything and a variable fee per unit of quantity sold, what fee and marginal price will it choose?

(f) What is the consumer surplus and producer surplus in this case? Prove that producer surplus has increased. What has happened to deadweight loss?

Reference no: EM131002962

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