Question: 8.1 A monopoly faces the inverse demand function: p = 100 - 2Q, with the corresponding marginal revenue function, MR = 100 - 4Q. The

8.1 A monopoly faces the inverse demand function:

p = 100 - 2Q, with the corresponding marginal revenue function, MR = 100 - 4Q. The firm’s total cost of production is C = 50 + 10Q + 3Q2, with a corresponding marginal cost of MC = 10 + 6Q.

a. Create a spreadsheet for Q = 1, 2, 3,

c, 15.

Using the MR = MC rule, determine the profitmaximizing output and price for the firm and the consequent level of profit.

b. Calculate the Lerner Index of monopoly power for each output level and verify its relationship with the value of the price elasticity of demand

(ε) at the profit-maximizing level of output.

c. Now suppose that a specific tax of 5 per unit is imposed on the monopoly. What is the effect on the monopoly’s profit-maximizing price?

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