Question 4 (20 points) A monopolist faces a demand curve given byQ - GAL/? p2 , where P is its price, A is its level of advertising and G is a positive constant. Advertising and output both cost the monopolist 1 per unit. The monopolist chooses price and advertising in order to maximise profit. You must provide all your working for this question. (a) Show that the monopolist chooses a price of p" - 2 (yielding an output of Q - GA1/2 4 ), an advertising level of Am G 2 8 and a level of output given by Qm G2 32 . [25 marks] (b) Bearing in mind the way the monopolist's output changes with A (found in (a)), find expressions for the monopolist's profit and for consumer surplus, both as functions of advertising. [40 marks] (c) Hence, calculate the level of advertising preferred by society and show that it is greater than the one chosen by the monopolist. [20 marks] (d) State (you do not need to explain) two factors that might overturn the 'over- advertising' result in (c). [15 marks] Format B U