Question: The Disney corporation has the copyrights to "Lion King". As such, it is a monopoly producer of Lion King DVD's. On the demand side of the market, Disney has market power and the demand curve for these DVD's is downward sloping. On the cost side, while it very expensive to produce and market the Lion King, the marginal cost of producing a copy of the DVD to sell is very low. Given this, please answer the following questions:

1. Draw the demand, MR, MC and AC. Is Disney's monopoly a "natural monopoly"? Explain how you arrived at your conclusion.
2. In a picture show the price a quantity of DVD's chosen by Disney operating as a monopolist. Now show the CS, and PS.
3. Now suppose the government imposed a price ceiling at competitive price level. Show the CS, PS, and also the DWL generated by the monopoly.
4. Is Disney's profit positive or negative under this price ceiling? How can you tell?

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