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1st question. (8 points) Suppose in the short run a monopolist has PC = $100, and MC is given by MC = 4 + Q,

1st question.

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(8 points) Suppose in the short run a monopolist has PC = $100, and MC is given by MC = 4 + Q, where Q is the quantity of output produced by the monopolist. Market demand is given by P = 84 2Q. a) What price will the profit maximizing monopolist charge? Q=169P=$52 b) What is the value of the Lerner Index at the profit maximizing price/quantity combination? (Please leave your answer as a fraction) LI = 32/52 = 16/26 = 8/13 = .615 2. (16 Total Points) Suppose in the short run a perfectly competitive firm has a fixed cost , F : $392. The firm's variable cost of production is given by TVC : Sq +2q2, where q is the quantity of output that the firm produces. The marginal cost of the firm is given by MC : 5 + 4q. The market demand for the good is given by Qd : 355 4P, where Qd is the total quantity demanded and P is the price of the good. Also, the market supply is given by Q5 : 128 + SF. in) (4 points) Calculate the equilibrium price in the market. d) (4 points) Calculate the breakeven price for this industry. Breakeven Price = $61 To find this, set MC = ATC and solve for q (q = 14). Substituting q = 14 into either the MC or the ATC gives Breakeven Price = $61

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