Let inverse demand be given by P = a - bQ. Let the monopolists total costs be C(Q) = F + cQ.
- What is the optimal price and quantity for the monopolist?
- Illustrate this using an appropriate diagram. On the same diagram, also show the marginal revenue curve.
- What is the elasticity of demand at the point at which the monopolist produces? Can this elasticity take a value between 0 and -1? Justify your answer.
- What is the dead weight loss (DWL) resulting from this market outcome?
- Indicate this DWL on an appropriate diagram
- At what fixed cost would the firm choose to close down?