Linear demand curve and constant marginal cost curve

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Reference no: EM131091961

Draw an example of a monopoly with a linear demand curve and a constant marginal cost curve.

a. Show the profit-maximizing price and output, p* and Q*, and identify the areas of consumer surplus, producer surplus, and deadweight loss. Also show the quantity, QC that would be produced if the monopoly were to act like a price taker.

b. Now suppose the demand curve is a smooth concave-to-the-origin curve (that hits both axes) that is tangent to the original demand curve at the point (Q*,p*). Explain why this monopoly equilibrium is the same as with the linear demand curve. Show how much output the firm would produce if it acted like a price taker. Show how the welfare areas change.

Reference no: EM131091961

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