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Monopoly effect on consumer/producer surplus

The inverse market demand curve is P=140-Q, and the inverse supply curve is P=20+Q. Assume that the closed market is NOT competitive, but is controlled by a single supplier. Again using the same inverse supply and demand curves, compute the following:

1. the monopoly equilibrium production/consumption level
2. the market price
3. the lost value of consumption, relative to the equilibrium in a competitive market.
4. the resource savings gain, relative to the equilibrium in a competitive market
5. the consumer surplus relative to the equilibrium in a competitive market.
6. the producer surplus relative to the equilibrium in a competitive market.
7. the welfare loss incurred in this monopolized market, compared with the equilibrium in
competitive market.

Solution Preview

The inverse market demand curve is P=140-Q, and the inverse supply curve is P=20+Q. Assume that the closed market is NOT competitive, but is controlled by a single supplier. Again using the same inverse supply and demand curves, compute the following:

1. the monopoly equilibrium production/consumption level
The monopoly would sell where MR = MC
Total Revenue = TR = PDQ = (140 - Q)Q = 140Q- Q2
Marginal Revenue = MR = dTR/dQ = 140 - 2Q
Total cost = PsQ = (20 + Q)Q = 20Q + Q2
Marginal Cost = MC = 20 + 2Q
MR = MC ...

Solution Summary

The inverse market demand curve is evaluated.

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