John's Lawn Mowing Service is a small business that acts as a price taker. Suppose the market demand curve for mowing lawns is given by P = 40 - 0.4Q where Q is the quantity demanded in the whole market. The prevailing market price of lawn mowing is $20 per lawn. John's costs are given by TC=0.1q2+10q+50, where q is the number of lawns John chooses to cut a day.
John pulled some political favour strings which got the local government to announce that only John can mow lawns in this state and closed down all other lawn mowing services.
Draw a neat diagram showing the D and MR curves, John's MC, the price-quantity equilibrium in the market under the two cases of perfect competition and monopoly, and the change in welfare.
What is the change in welfare in the market (consumer surplus, producer surplus and deadweight loss) compared to the case when John was a price taker? find out.