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Assume that the market demand, marginal revenue, and total costs faced by a food firm are:
p = 1000 - 10q (demand),
TR = 1000q - 10q2 (total revenue), and TC = 300q (total cost),

where p is the price, and q is the total quantity (in thousands).

a. Assuming that the firm acts as a monopolist, calculate the optimal price, quantity, and profit (i.e., TR - TC) for the organization. After using algebra to find the solution, present your results graphically.

b. The Department of Justice claims that the monopoly solution in part a is socially inefficient, and passes a law that requires the firm to set its output and price lev- els as if it were a perfect competitor. Assuming the firm follows the new law, what would the price, quantity, and profit now be?

Microeconomics, Economics

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