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1. If monopolies are always bad, why does the government award firms with monopolies (such as for public utilities )?

Discuss the pricing behavior by firms with market power and their welfare implications.

Explain the basic determinants of market structure and key issue for competition policy and regulation.

Assume that Namibia’s Cement Industry is represented by the following cost function. 

                        C(q1, q2) = 20 + 10q1 + 10q2 - 4q1 q2 /2

Where q1 denotes Ohorongo cement output and q2 represent Cheetah cement output. Further to this, assume that Ray’s average costs: assume l1 = 0.6 l2 = 0.4, thus  q1 = 0.6Q;  q2 = 0.4Q.  Use Ray’s average cost of multi-product firms to determine if the cement industry exhibits a global economy of scale or diseconomies of scale. Show all your steps.            [10]

Consider a demand function for a monopolist is P = 25 - 0.25Q; total costs are TC = 10 + 5Q + 0.2Q2 ; marginal revenue is MR = 15 – 2Q; and marginal cost is MC = 5 + 0.5 Answer the following questions
i.What is the profit-maximizing rate of output and price?                  [10]
ii.Calculate the monopolist welfare loss (WL), where ; and   represent price elasticity of demand                                                   [10]
iii. Use the Lerner index to determine if market power exists [5]