Question : There monopolist with the cost function of TC= 500+ 1000Q : 6040
There is monopolist with the cost function of TC= 500+ 1000Q facing a demand curve of P=21000-2Q.
(a) What is the profit maximizing price and quantity for the monopolist? What is the price elasticity of demand at this point? What is the Lerner index? What is the profit of the monopolist?
(b) now assume that another firm with the same cost function enters this market. However instead of competing, the two firms agree to each produce half of the monopoly output. What would be the effect on consumers? What is the profit for each firm? What is the effect on efficiency?