Suppose a monopolist has the following cost function C(Q) = Q 2 (with marginal cost MC(Q)

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Suppose a monopolist has the following cost function C(Q) = ¼ Q² (with marginal cost MC(Q) = ½ Q). Suppose they face demand is P = 100 – ⅓ Q.

a) Sketch the market demand, marginal costs, and marginal revenues.

b) What is the monopolist’s optimal level of output and profits?

c) Confirm that demand is elastic at the optimal output.

d) Calculate the firm’s markup.

e) What is the DWL associated with the monopoly output?

f) Suppose the government offered a $10 production subsidy to the monopolist. What is their new optimal output?

g) Does the DWL fall or rise? Discuss why.

Related Book For answer-question

Microeconomics An Intuitive Approach with Calculus

ISBN: 978-0538453257

1st edition

Authors: Thomas Nechyba

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Posted Date: Jan 02, 2024 06:46 AM

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Suppose a monopolist has the following cost function C(Q) = Q 2 (with marginal cost MC(Q)

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a Sketching Demand Marginal Cost and Marginal Revenue Demand Linear downwardsloping curve starting a... View the full answer

Microeconomics An Intuitive Approach with Calculus

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