Problem 1: Perfect Competition and Monopoly. Demand is given by Q(P)

Question

Problem 1: Perfect Competition and Monopoly. Demand is given by Q(P)

= 70− 1 2 P and the marginal cost of production is constant at MC = 20 per unit. There are no fixed costs to production.
1. First, assume that the market is perfectly competitive.
a) Find the inverse demand curve, or P(Q).
b) Find the market price P^c and the market quantity Q^c .
c) What is producer surplus? What is consumer surplus? What is total surplus?
2. Now, assume there is a single monopoly producer.
a) Find the monopolist's marginal revenue curve MR(Q).
b) Find the profit-maximizing quantity Q^m and price P^m for the monopolist.
c) What is producer surplus? What is consumer surplus? What is total surplus?

Answer 1

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