Problem 2:

A firm has demand function of P=100-Q ($) and total cost function of

TC=500+ 4Q+Q2

($).

a. Is this firm a perfect competitive firm? Why?

b. What is price and quantity to maximize total revenue ? What is that

maximum total revenue ?

c. What is price and optimal quantity to maximize profit? What is that

maximum total profit ?

d. Asume government imposes a tax of 8 $ per unit of good sold, what is

price and optimal quantity that gives the firm maximum profit? What is this

maximum profit?

e. Asume government imposes a fixed tax of 100 $, what is price and

optimal quantity that gives the firm maximum profit?

Problem 3:

A monopoly has a demand function of P=15-Q ($) and total cost function of

TC= 7Q ($)

a. What is price and optimal quantity that gives the firm maximum profit?

Using Lerner indicator (L) to identify market power of this firm?

b. What is price and optimal quantity for society (for perfect competitive

• market)? Identify dead-weight loss (DL) created by this firm?