Question

(a)A firm has a total cost function () = 100 + 4 + 2² and demand function is

= 100 3

Required:

(i)Determine the firm's marginal cost when Q = 4

(ii)Find the own-price elasticity of demand.

(iii)Consider the marginal cost in (i) calculate the Lerner index.

(iv)By what factors does this firm mark up its price over marginal cost?

(b)A monopoly is considering selling several units of a homogeneous product as a single package. A typical consumer's demand for the product is Q^d = 80 0.5P, and the marginal cost of production is RM100.

(i)Determine the optimal number of units to put in a package.

(ii)How much should the firm charge for this package?