Big Phone, Inc. provides local telephone service for customers in a rural area of Oklahoma. The company's total and marginal revenue functions are represented by the equations below:
TR = 100Q - 0.0002Q2
MR = dTR/dQ = 100 - 0.0004Q
Q is the number of customers and both revenues and costs are in dollars per month. Assume that marginal costs are stable at $20 per customer and that fixed costs are negligible.
a) As a monopoly, calculate the firm's output, price, and profits at the profit-maximizing activity level. Show all your work and explain your solution method briefly.
b) What output, price, and profit levels would prevail following expiration of the company's monopoly franchise assuming that vigorous competition evolves between the local cable TV company, voIP firms, and Big Phone, Inc.? Assume that a long-run perfectly competitive market situation is the result. Show all your work and explain your solution method briefly.
c) Compare and contrast your results in parts a) and b). Why is there a difference?