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Question: assume a natural monopolist operates with total costs c ...

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Assume a (natural) monopolist operates with total costs C = 600+40Q. Market demand for their product is Q = 120 – P (hint: a diagram will help you with this question).

  1. a) If a regulator sets price at marginal cost in this market, what is themonopolist’s profit? Show your work.

  2. b) Suppose that in the absence of regulation, average cost pricing is chosen by the monopolist instead of MC pricing. Find market price, output and deadweight loss compared to the solution in a). Briefly discuss these differences.

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