Consider a firm with monopoly power that faces the demand curve P = 100 - 3 Q
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Consider a firm with monopoly power that faces the demand curve
P = 100 - 3Q + 4A1/2
and has the total cost function
C = 4Q2 + 10Q + A
where A is the level of advertising expenditures, and P and Q are price and output.
a. Find the values of A, Q, and P that maximize the firm’s profit.
b. Calculate the Lerner index, L = (P - MC)/P, for this firm at its profit-maximizing levels of A, Q, and P.
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