1. (8)a.) (4) The United States Postal Service (USPS) charged $0.66 per stamp in 2023. They allow stamps.com to sell a sheet of twenty stamps with personalized photos for $1.20 per stamp. Stamps.com keeps the extra beyond the $0.66 it pays the USPS. If stamps.com is acting as a profit maximizing monopolist, what is their Lerner Index and what is the price elasticity of demand for a customized stamp?
   1. - 0.66 = 0.54

0.54 / 1.20 = 0.45 = Lerner Index

1 / 0.45 = -2.22 = Elasticity demand

b.) (4) Suppose a movie theater determines that the elasticity of demand for movie tickets is -2.0 for senior citizens and -1.5 for adults under age 65, and the marginal cost is $5 per consumer. Use the Lerner index to determine the price senior citizens should be charged and the price adults under age 65 should be charged in order to maximize profits.

2. (8) Suppose a monopolist faces a market demand curve given by P = 50 - 0.5*Q. Marginal cost is initially equal to zero and constant.

a. (4)Calculate the profit maximizing price and quantity. Use the Lerner index to calculate the price elasticity of demand at this point. What is the amount of deadweight loss associated with this monopoly?

b. (4) Suppose marginal cost increases to MC = 10 for all units while demand and marginal revenue remain constant. Calculate the new profit maximizing price, quantity, the price elasticity of demand, and deadweight loss.