Answer the following sub-questions based on the information provided. You will draw
explanatory graphs associated with each market structure as is relevant to the explanation.
Consider an (inverse) demand curve P = 30 – Q. And a total cost curve of C(Q) = 12Q.
(a) Assume a monopolist is operating in this market.
(i) Calculate the quantity (qM) chosen by a profit-maximizing monopolist.
(ii) At the profit-maximizing quantity, what is the monopolistic market price (pM) of the
product.
(iii) Calculate the dead-weight loss (allocative inefficiency) associated with this monopoly
market.
(b) Assume the market for this product is perfectly competitive.
(i) Calculate the market-clearing output (qPC) and price (pPC) for the product.
(ii) Is there any allocative inefficiency in this case?