Exercise3

A monopolist has an inverse demand curve given byp(y) = 12yand a cost curve

given byc(y) =y².

(1) What will be its profit-maximizing level of output?

(2) Suppose the government decides to put a tax on this monopolist so that for each unit it sells it has to pay the government $2. What will be its output under this form of taxation?

(3) Suppose now that the government puts a lump sum tax of $10 on the profits of the monopolist. What will be its output?