Question: Consider a firm with monopoly power that faces the demand curve P = 100 - 3 Q + 4 A 1/2 and has the total

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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a Profit p is equal to total revenue TR minus total cost TC Here TR PQ 100 ... View full answer

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