14.4 Suppose there is no advertising (A = 0). What output will the proit-maximising irm choose?

What market price will this yield? What will be the monopoly’s proits?

Now let the irm also choose its optimal level of advertising expenditure. In this situation, what output level will be chosen? What price will this yield? What will the level of advertising be?

What are the irm’s proits in this case? Hint: This can be worked out most easily by assuming the monopoly chooses the proit-maximising price rather than quantity.

Suppose a monopoly can produce any level of output it wishes at a constant marginal (and average) cost of €5 per unit. Assume the monopoly sells its goods in two different markets separated by some distance. The demand curve in the first market is given by Q1 = 55 − P1, and the demand curve in the second market is given by Q2 = 70 − 2P2.
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