equilibria with free competition and with a monopoly

Here's what I think I know about the answer: to get the $ value of DWL you have to take the area of the aggregate surplus under perfect competition and substract the area of the aggregate surplus under monopoly (helps to make a little graph.) The funny thing is, my main problem is I don't know the geometry necessary to do that. There may be another method, I'll leave it to you.

Here's the problem:

I am considering giving a patent for a new drug. The public demand is given by: P = 120 - 10Q, where Q is quantity of the drug and P is price. If the marginal cost of production is given by MC = 2Q, what will be the monetary value of the efficiency loss of granting the company monopoly power (meaning a patent)?

Remember that a marginal revenue function can be derived from a linear demand function by doubling the slope of that function.

Solution Preview

Hello!
Let's first determine the equilibria with free competition and with a monopoly.

Under perfect competition, equilibrium arises when demand is equal to MC. So we have:

120 - 10Q = 2Q

12Q = 120

Q = 10

Now, plugging this equilibrium Q into the demand equation, we get that the equilibrium price is 20.

Under a monopoly, equilibrium arises when Marginal Revenue is equal to MC. We use the general formula that states that when demand is of the form A - B*Q, then marginal income is A - 2B*Q. So in this case, marginal revenue is 120-20Q. Now we find the equilibrium:

120 - 20Q = 2Q

22Q = 120

Q = 5.4545...

Plugging this Q into the demand ...

Solution Summary

Determine equilibria with free competition and with a monopoly.

Markets: Perfect competition, monopoly, monopolistic competition, oligopoly.
1- Give a specific example for each ( US Companies ).
2- Which one is better market from the stand point of producers?
3- Which one is better market on the stand point of consumers?

How many real industries can you name that are oligopolies? How many operate under monopolistic competition? Perfect competition? Which of these is most difficult to find I reality? Why do you think this is so?

7.Monopolists differ from perfect competitors because monopolists always make a profit? True or false? Why?
8.What are the "monopolistic" and the "competitive" elements of monopolistic competition?

Of the following forms of competition, identify an example of a product or service (the company) and a respective industry for that form of competition.
The four forms of competition are:
- monopolistic competition
- pure competition
- oligopoly
- monopoly
Also consider how would identifying the type of competitive m

Which of the following is NOT a problem withmonopoly?
The price does not signal true cost.
Monopolists typically force customers to purchase more than they want to.
A monopolist may not produce at the lowest point of its average cost curve.
The quantity produced is typically less than in pure competition.

Explain why a certain triangular area is a measure of the deadweight loss of monopoly. What information do you require in order to calculate the size of this triangle?