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Suppose a perfectly competitive industry can produce widgets at a constant marginal cost of $10 per unit. Monopolized marginal costs rise to $12 per unit because $2 per unitmust be paid to lobbyists to retain the widget producers’ favored position. Suppose themarket demand for widgets is given by:QD = 1000 – 50P.
a) Calculate the perfectly competitive and monopoly outputs and prices.
b) Calculate the total loss of consumer surplus from monopolization of widget production.
c) Graph your results and explain how they differ from the usual analysis.