Question: A monopolist faces an inverse demand function and a total cost function given by, P(Q) = AQ^-a, A>0 and 0 0 Find the own-price elasticity

A monopolist faces an inverse demand function and a total cost function given by, P(Q) = AQ^-a, A>0 and 0

C(Q) = cQ^2, c>0

  • Find the own-price elasticity of the demand function. What do you observe?
  • Find the profit-maximizing level of output Q!. Confirm that the second-order condition for a maximum is satisfied.
  • Show algebraically (simply the expressions) how an increase in (i) parameter c and (ii) parameter A, affects the profit-maximizing level of output Q!. Do you expect these results?

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