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Problem 1 Consider a monopoly selling at a single market where the demand is given by Q(p) = ap , with & > 1. The
Problem 1 Consider a monopoly selling at a single market where the demand is given by Q(p) = ap , with & > 1. The cost function of the monopoly is C(q) = cq. a. Calculate the demand elasticity and write down the marginal revenue function as a function of price. b. Find the price charged by the monopoly as a function of E. c. What happens to the monopoly's price when & increases. Discuss. d. What happens to the monopoly's price as & - 1. Explain. e. What is the monopoly's profit-maximising output? Problem 2 Consider a monopolised industry, where the demand function is given by Q(p) = p-, with & > 1. The cost function of the monopoly is C(q) = cq. a. Show that a social planner (or a competitive industry) would set a price yielding a total welfare of We =T. b. Compute the welfare loss (WL) under monopoly
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