Reference no: EM13186475
A monopoly sells music CDs. It has a constant marginal and average total cost of $20. It faces two groups of potential customers: honest and dishonest people. The dishonest and honest consumers' demand functions are the same,Qh = Qd = 120 - P.
(a) If it is not possible for dishonest customers to steal the music, via illegal torrents, what are the monopolist's profit maximizing price and quantity?
(b) What are the monopoly's profits?
(c) What is the value of consumer surplus, producer surplus, economic surplus, and dead-weight loss?
(d) Now, suppose that the dishonest customers can pirate the music. What are the monopoly's profit maximizing price and quantity?
(e) What are the monopoly's profits when dishonest consumers pirate the music?
(f) What is the value of consumer surplus, producer surplus, economic surplus, and dead-weight loss, with piracy?
(g) What is the welfare effect of piracy?
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