Consider a market with demand given by Q = 30p-2. A firm has a constant MC...

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Consider a market with demand given by Q = 30p-2. A firm has a constant MC = 5 with no fixed costs. Use the Lerner Index rule to answer the following questions. a) (10 points) Suppose the government grants this firm an exclusive monopoly in this market. Find the price- cost margin (the mark-up) and the profit maximizing price. b) (10 points) Suppose that, in addition to the firm's output, the government also produces Qc 5p, %3D where p is the price charged by the firm. Obtain the firm's residual demand (very easy) and show that the presence of the government in the market does not change neither the market price nor the market quantity. How is the market split between the firm and the government (what is the market share of each one)? Consider a market with demand given by Q = 30p-2. A firm has a constant MC = 5 with no fixed costs. Use the Lerner Index rule to answer the following questions. a) (10 points) Suppose the government grants this firm an exclusive monopoly in this market. Find the price- cost margin (the mark-up) and the profit maximizing price. b) (10 points) Suppose that, in addition to the firm's output, the government also produces Qc 5p, %3D where p is the price charged by the firm. Obtain the firm's residual demand (very easy) and show that the presence of the government in the market does not change neither the market price nor the market quantity. How is the market split between the firm and the government (what is the market share of each one)?

Answer rating: 100% (QA)

Here demand is given by Q 30p 2 30P2 Marginal Cost is gi... View the full answer