Question
Suppose a monopolist faces a market demand curve given by P = 50 - 0.5* Q . Marginal cost is initially equal to zero and
Suppose a monopolist faces a market demand curve given by P = 50 - 0.5*Q. Marginal cost is initially equal to zero and constant.
a. (4)Calculate the profit maximizing price and quantity. Use the Lerner index to calculate the price elasticity of demand at this point. What is the amount of deadweight loss associated with this monopoly?
b. (4) Suppose marginal cost increases to MC = 10 for all units while demand and marginal revenue remain constant. Calculate the new profit maximizing price, quantity, the price elasticity of demand, and deadweight loss.
Step by Step Solution
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Step: 1
Monopoly Analysis Price Quantity Deadweight Loss Part a Zero Marginal Cost 1 Profit Maximization A monopolist maximizes profit when Marginal Revenue M...
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Step: 3
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Econometric Analysis
Authors: William H. Greene
5th Edition
130661899, 978-0130661890
