3. Suppose a monopolist faces a demand curve of D: P = 50 – 5Q. There are no fixed costs, but there is a constant marginal cost where MC = 10. a) What is the optimal quantity, price and profit level?

3. Suppose a monopolist faces a demand curve of D: P = 50 – 5Q. There are no fixed costs, but there is a constant marginal cost where MC = 10. a) What is the optimal quantity, price and profit level?

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Question

3. Suppose a monopolist faces a demand curve of D: P = 50 – 5Q. There are no fixed costs, but there is a constant marginal cost where MC = 10.

a) What is the optimal quantity, price and profit level?

b) Would profits increase or decrease if the monopolist price discriminated?

c) Would consumer surplus increase or decrease if the monopolist price discriminated?

Consumer’s gain from trade. The consumer surplus is the area below the demand curve but above the equilibrium price and up to the equilibrium quantity. Consumer surplus is represented by area A.

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