Question: 1. Consider a monopolist facing the demand curve p = 90 2q with cost function c(q) = 0.25q 2 . (a) Find the profit maximizing

1. Consider a monopolist facing the demand curve p = 90 2q with cost function c(q) = 0.25q 2 .

(a) Find the profit maximizing quantity qm and price pm. What are the monopolists profits?

(b) What is the value of the firms mark-up (also called the Lerner index) at qm?

(c) Find the efficient quantity and draw a graph depicting the deadweight loss under monopoly.

(d) What is the consumers surplus under monopoly.

(e) Suppose the government offers the monopolist a subsidy of $s for each unit sold. Find the value of s that induces the monopolist to sell the efficient quantity. What is the total subsidy received by the monopolist?

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