McDuell_Specific_Tax_and_Profit_Startc

Problem 8-1 p = 100 - 2Q MR = 100 - 4Q C = 50 + 10Q + MC = 10 + 6Q a) b) c) Tax = $20 a) Q p ε R MR 1 $98 -49.00 $98 $96 $63 $16 2 $96 -24.00 $192 $92 $82 $22 3 $94 -15.67 $282 $88 $107 $28 4 $92 -11.50 $368 $84 $138 $34 5 $90 -9.00 $450 $80 $175 $40 6 $88 -7.33 $528 $76 $218 $46 7 $86 -6.14 $602 $72 $267 $52 8 $84 -5.25 $672 $68 $322 $58 9 $82 -4.56 $738 $64 $383 $64 10 $80 -4.00 $800 $60 $450 $70 11 $78 -3.55 $858 $56 $523 $76 12 $76 -3.17 $912 $52 $602 $82 13 $74 -2.85 $962 $48 $687 $88 14 $72 -2.57 $1,008 $44 $778 $94 A monopoly faces the inverse demand function: p = 100 – 2Q, with the correspo = 100 – 4Q. The firm’s total cost of production is C = 50 + 10Q + 3Q 2 , with a co + 6Q. Calculate the prices, price elasticity of demand, revenues, marginal rev for Q =1, 2, 3, …, 15. Using the MR = MC rule, determine the profit-m and the consequent level of profit. Calculate the Lerner Index of monopoly power at the profit-maximizin the relationship with the value of the price elasticity of demand at the p Now suppose that a specific tax of 20 per unit is imposed on the monop in part (a) (with the 2 subscript denoting the cost, marginal cost, and pr Determine the effect on the monopoly’s profit-maximizing price. C 1 MC 1

15 $70 -2.33 $1,050 $40 $875 $100 The optimal output, where MR=MC is 9 units. The corres At this output profit reaches its maximum level of $355 . b) Lerner Index is 0.2195 . The price elasticity of demand at the profit-maximizing output-pri Thus, the Lerner Index is the inverse of the value of the price el c) After a specific tax is imposed on the monopoly the profit-maxim The corresponding price is $86 . The post-tax optimal p

$175 $1,175 $120 -$125 sponding price is $82 . ice combination is -4.56 . lasticity of demand. mizing output is 7 . profit is $195 .

Steps to P Step 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Project D In this pro

0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 Points Possible