Reference no: EM131103629
Suppose there are 100 firms in a perfectly competitive industry. Each firm has a U-shaped, long-run average cost curve that reaches a minimum of $10 at an output level of 8 units. Marginal costs are given by
MC(q)= q+2
and market demand is given by
Q=1000-20P
a. Find the long-run equilibrium in this market and determine the consumer and producer surplus (in this case, the areas of the triangles).
b. Suppose instead there was a single supplier whose marginal cost curve is
MC(Q) =(1/100)Q+2
i) From the above expression for market demand, determine the monopolist’s average revenue curve.
ii) From part (i), find the monopolist’s total revenue curve.
iii) Differentiate the expression in part (ii) to obtain the monopolist/s marginal revenue curve.
iv) From part (iii), what is the monopolist’s optimal supply?
v) Explain why this outcome is inefficient in comparison to the competitive outcome.
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