1. A profit maximizing firm in perfect competition produces no dead weight loss but a profit maximizing firm in a monopoly market does produce deadweight loss.
a) Show a constant cost monopoly firm maximizing its profit but producing a deadweight loss.
b) If the firm in the monopoly can charge only one price, what would this price be in order to eliminate the deadweight loss. Show and explain.
c) Why would the monopoly not charge this price? Show and explain.
2. a) The perfectly competitive market for corn is in equilibrium at $10 per bushel of corn. All firms are breaking even. But now suppose that there is a successful advertisement campaign against the consumption of corn and some firms end up leaving the market. Using the demand and supply diagram for the corn market, explain why this might happen.
(b) Next, using the cost diagram of the firm, show and explain why this might happen.
(c) Next, using another demand and supply diagram, show and explain the long terms effects of this advertising campaign on the corn market.