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3. Suppose you operate a single price monopoly in the area for hydroelectric power. Answer the...

3. Suppose you operate a single price monopoly in the area for hydroelectric power. Answer the following questions in relation to your company and monopoly market structure. Given the following information for your company

Demand: P=300-5Qd

Marginal Revenue: P=300-10Qd

Marginal Cost P=-12.5+2.5Q

a) Plot each curve on the same graph and show how the monopolist determines the price that maximizes profit. What price will this monopolist charge?

b) If the ATC for the price and quantity determined in a) is $100, draw a U-shaped ATC curve corresponding to this. Is the monopolist earning economic profits? If so, how much? c) With the aid of diagrams, explain how a monopolist can price discriminate and why? What is a necessary condition for the monopolist to be able to price discriminate?

d) Compare your results in a) with that of the competitive equilibrium, showing both on a new graph. If the monopolist cannot price discriminate, indicate the monopoly gain, CS and DWL on the graph. What are these values numerically?

e) What would happen if the monopolist could perfectly price discriminate?

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