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Suppose a monopolist has cornered the market on trashy paperbacks. The monopolist’s cost functions are as following: Fixed costs = $1,000 Marginal cost = $1 (per book, constant)a. How does the average cost of production change as the amount of output grows?b. Assume aggregate demand is given by P=10-0.0002 Q, so MR=10-0.0004 Q. What is the monopolists profit maximizing price and quantity? (Assume only a single price is allowed.) How much profit does the monopolist earn under that strategy?c. Is this outcome “efficient”? Why not?d. Suggest a government intervention that would lead to an efficient outcome (without driving the monopolist out of business).
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