Practice Questions

7. A monopolist produces output Q at a cost of C (Q) = 4Q + Q2 The market demand function is P(Q) = 12 Q (a) Suppose the monopolist can only charge a single price. Calculate the mo nopolist's profit-maximising price and quantity. [5 marks] (b) Calculate the deadweight loss under monopoly. [5 marks] (c) Suppose a regulator imposes a per unit tax of t on the deadweight loss under monopoly. The monopolist's prot is now given by P(Q)Q - C(Q) - t13(Q) where D(Q) is the deadweight loss at quantity Q. Suppose t = 4. Calculate the optimal quantity produced by the monopolist under this policy. [5 marks] (d) Suppose the monopolist can charge a twopart tariff consisting of a lump- sum fee and a perunit price. In this case, what is the tax revenue from the policy in part (c)? [5 marks]