Suppose that a perfectly competitive industry that forms eyelets is taken over by a single firm and transformed into a monopoly. The monopolist faces the following demand function: Q = 100 - 2P. Average and marginal costs are equal and constant at the $20 per unit. (There are no fixed costs) Again, it is recommended that you draw a graph.
1. Identify the profit-maximizing price and output of the new monopoly.
2. Identify the level of monopoly profits.
3. Determine the efficiency loss or deadweight loss associated with monopolization.
4. Now assume that the absence of competition under monopoly over time raises costs of production to $30 per unit. Determine the increase in production costs due to X-Inefficiency.