Please see the attached file.
Consider the following monopoly that produces paperback books:
Fixed Costs = $1,000 Marginal Costs = $1 (and is constant)
A) Draw the average total cost curve and the marginal cost curve on the same graph.
B) Assume that all households have the same demand schedule, given by the following relationship:
0 2.5 5.0
If there are 400 households in the economy, draw the market demand curve and the marginal revenue schedule facing the monopolist?
C) What is the monopolist's profit-maximizing output? What is the monopolist's price?
D) What is the "efficient price", assuming no externalities?
E) Suppose the government "imposed" the efficient price by setting a ceiling on price at the efficient level. What is the long-run output of the monopoly?
The solution answers the question below.