Exercise 1

Consider a monopolist facing a market demand given by quantity q = a - p, where p is the price charged and a > 0. If the monopolist's marginal cost is a constant c, calculate

1. The monopoly price,

2. The monopoly quantity,

3. The monopolist's profits (ignore fixed costs),

4. Consumer surplus under monopoly,

5. The competitive price,

6.The competitive quantity,

7. Industry profits under competition, and

8 Consumer surplus under competition.

Finally,

9. Illustrate all of the above calculations in a supply and demand diagram.