Answer to Question #176276 in Microeconomics for Debbie

Question

The market demand is now Q(P) = 30000/P2. There are three suppliers, each with constant marginal cost (a reasonable approximation in electricity generation). Firm 1 has a capacity of 200 at MC = 5. Firm 2 has a capacity of 100 at MC = 8. Firm 3 has a capacity of 100 at MC = 10. Now, all three firms merge and become a single firm. The newly created firm becomes a monopoly.

1. Compute the profits maximizing price and quantity this firm will choose.
2. Compute (approximately) the deadweight loss in the monopoly equilibrium.

Answer 1

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