Question

A small monopoly manufacturer of widgets has a constant marginal cost of $15. The demand for this firm's widgets is Q = 105 - 2P Given the above information, compute the social cost of this firm's monopoly power. The social cost is $ . (Round your response to the nearest penny.)

Answer 1

Answer

A social output is at MC=P

converting the demand curve to inverse demand curve

Q=105-2P

2P=105-Q

P=52.5-0.5Q

equating to MC

52.5-0.5Q=15

0.5Q=37.5

Q=75

P=15

===========

monopoly output is at MR=MC

MR=52.5-Q ......... An MR curve is double sloped than an inverse linear demand curve

52.5-Q =15

Q=37.5

P=52.5-0.5*37.5

P=33.75

==========

Deadweight loss =0.5*(Monopoly price - MC)*change inquantity

=0.5*(33.75-15)*(75-37.5)

=351.5625

=351.56

the social cost is $351.56