Question

A monopolist is facing the demand function p =440−q and has the cost function c(q)=2q2. a) Find producer’s surplus and consumers’ surplus if the monopolist is charging a uniform price.
b) Prove that the uniform monopoly outcome is not Pareto efficient.
c) Provide an example of monopoly regulation that will improve efficiency.
d) Find the optimal entry fee and usage fee if the firm is charging a two-part tariff. What are the monopoly profits?
e) Find producer’s surplus and consumers’ surplus if the monopolist can practice firstdegree price discrimination.
f) Find producer’s surplus and consumers’ surplus if the monopolist was forced to behave as a competitive firm.
g) Which of the outcomes in d), e) and f) are Pareto efficient? Can we use one of these outcomes to prove that the result in part a) is not Pareto efficient? Explain your answer.

Answer 1

g. All the above 3 outcome d,e and f are pareto efficient because total surplus is maximised. Yes, we can compare the total surplus.