Question - Assume Red Eye, a monopolist, faces a market demand curve P = 130 - 2Q, and has the short-run total cost function TC = 350 + 10Q.
(a) What is Red Eye's profit-maximizing level of output and price? What are profits?
(b) Graph the marginal revenue, marginal cost, and demand curves.
(c) What would price and output be if Red Eye priced at socially efficient (competitive) levels? What is the magnitude of the deadweight loss caused by monopoly pricing?