Question

Suppose Demand for Apples (in bushels) is given by Q = 90-P and Supply is given by Q = P. The market for apples is dominated by a single, monopolistic firm "NYC Apples". How much more will consumers pay for Apples with NYC Apples being a monopoly compared to if it were a perfectly competitive market?

Answer 1

Monopoly case

Take demand in inverse form and find its total and marginal revenue

P = 90 - Q

TR = 90Q - Q^2

MR = 90 - 2Q

Supply function can be taken as marginal cost so MC = Q

Monopoly profit maximization output is found using MR = MC

90 - 2Q = Q

Q* = 30 and P = 90 - 30 = $60

Consumers pay a price of $60 per unit under a monopoly case

Perfectly competitive market case

Qd = Qs

90 - P = P

P = $45

Comparatively, consumers pay for Apples with NYC Apples being a monopoly an amount of $60 which is $15 more than what they pay compared to a perfectly competitive market.