Question: Assume a monopolist faces a demand curve P = 100 — 2 Q where P is price and Q is quantity demanded, and has short run total cost function C = 20 Q where C is total cost of supplying Q.

1. What is the profit-maximizing level of output?
2. What are the monopolist’s profits?
3. Graph the marginal revenue, marginal cost, and demand curves, and show the area that represents the deadweight loss of the monopoly (relative to a competitive industry) on the graph.
4. A monopoly publisher pays an author a royalty of a percentage of the revenues from her book. Show how this method of compensation affects the price the publisher sets and the number of books that the publisher sells, relative to the case if no royalty is paid.

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