In a monopoly market, you have an inverse demand function P=a-bQ, where Q is total market...

 

Transcribed Image Text:

In a monopoly market, you have an inverse demand function P=a-bQ, where Q is total market production and a and bare positive constants. Assume marginal costs of production are a positive constant c. a. Obtain the marginal revenue of this firm. Explain why it is different from that of a perfectly competitive firm. [30%] b. Calculate the lump sum tax which would induce this monopoly firm to exit the market. Explain. [30%] c. d. Assume this monopoly has found a way to divide their consumer base into two identifiable groups. Discuss the impact this would have on the prices consumers pay. [20%] Calculate the incentive this monopoly would have to invest in a process innovation. Explain. [20%] In a monopoly market, you have an inverse demand function P=a-bQ, where Q is total market production and a and bare positive constants. Assume marginal costs of production are a positive constant c. a. Obtain the marginal revenue of this firm. Explain why it is different from that of a perfectly competitive firm. [30%] b. Calculate the lump sum tax which would induce this monopoly firm to exit the market. Explain. [30%] c. d. Assume this monopoly has found a way to divide their consumer base into two identifiable groups. Discuss the impact this would have on the prices consumers pay. [20%] Calculate the incentive this monopoly would have to invest in a process innovation. Explain. [20%]

Answer rating: 100% (QA)

SOLUTION a The marginal revenue MR for a monopoly with an inverse demand function P a bQ can be derived by taking the derivative of the demand function with respect to quantity Q and then multiplying ... View the full answer