Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder

Exercise 27

Suppose a perfectly competitive industry can produce Roman candles at a constant marginal cost of$10 per unit. Once the industry is monopolized, marginal costs rise to $12 per unit because $2 per unit must be paid to politicians to ensure that only this firm receives a Roman candle license. Suppose the market demand for Roman candles is given by
QD = 1,000 - 50P and the marginal revenue function by
MR = 20 - Q/25
a. Calculate the perfectly competitive and monopoly outputs and prices.
b. Calculate the total loss of consumer surplus from monopolization of Roman candle production.
c. Graph and discuss your results.