Tad’s bait shop has a monopoly in the bait market at Sanderson’s Lake. Demand for bait is given by Q = 56 – 8P. Tad’s marginal cost function is MC = 0.25Q.
(a) Find Tad’s optimal choice of output and price.
(b) Find the level of consumer surplus that accompanies Tad’s optimal choice.
(c) Find the level of consumer surplus in competitive equilibrium in this market. Compare this to your answer in part (b).