Marginal Cost: MC = 4 + 2Q
Suppose you also know that the market demand curve is given by the following equation:
Market Demand: P = 19 – (1/2)Q
a) Given the above information, what is this monopolist’s equation for MR?
b) Determine the profit maximizing level of production for this monopolist as well as the price
that will be charged for each unit of the good. Assume that this is a single price monopolist, i.e.
the monopolist cannot engage in price discrimination. Explain how you found your answer.
c) Given the above information and your answer in (b) calculate the level of profit in the short-
run for this monopolist. Explain how you found your answer.
d) Given your answer in (c), what do you predict will happen to this monopolist in the long-run?
e) Calculate the deadweight loss that results from this market being served by a monopolist.
Show how you found your answer. Provide a graph that is well labeled to illustrate your answer.
4. Use the following graph of a natural monopolist to answer this next question. The graph
depicts the market for a monopolist where LRATC is the long-run average total cost curve, MC
is the marginal cost curve, and Demand is the market demand for the product. You are also told
that the reciprocal of the slope of the market demand curve is -5.
a) Given the above information and the graph, write the equation for the market demand curve in
slope intercept form. Explain how you found your answer. You will need to provide a numeric
value for “A” in the above graph.
b) Suppose that this monopolist is not regulated. Explain how this monopolist will determine its
profit maximizing output and price. Assume that the monopolist is a single price monopolist.
After explaining the process, identify the unregulated monopolist’s quantity and price on the
graph labeling the quantity (F) and the price (G). Note: you will not be able to actually compute
F and G – just label them on a well-drawn diagram.