1.A monopoly faces the following demand and cost curves: , and .

a.What is the general form for the monopoly's price elasticity of demand? (General form means you should solve as a function of , not use the formula for the optimal .)

b.Using your formula, explain how and why the price elasticity of demand changes along the demand curve.

2.True/False A monopoly does not have a supply curve.

3.Starting from the definition of the Lerner index, derive the equivalent expression, , where is the price elasticity of demand.

4.Starting from the ratio of price to marginal cost, , derive the equivalent expression where is the price elasticity of demand.