A monopolist faces a market demand curve given by Q(p) = 70-p. Its total costs are described by TC(Q)= 3002³-52 +250. 1 a) Derive the monopoly price, quantity, and profits. b) Calculate Lerner Index under the monopoly equilibrium. c) Now suppose the government sets the maximum price at $40. What output level and price level will the monopolist choose to maximize profits? What is the deadweight loss? d) Suppose the government sets the maximum price at $30. What output level and price level will the monopolist choose to maximize profits? What is the deadweight loss?
A monopolist faces a market demand curve given by Q(p) = 70-p. Its total costs are described by TC(Q)= 3002³-52 +250. 1 a) Derive the monopoly price, quantity, and profits. b) Calculate Lerner Index under the monopoly equilibrium. c) Now suppose the government sets the maximum price at $40. What output level and price level will the monopolist choose to maximize profits? What is the deadweight loss? d) Suppose the government sets the maximum price at $30. What output level and price level will the monopolist choose to maximize profits? What is the deadweight loss?
Chapter14: Monopoly
Section: Chapter Questions
Problem 14.2P
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