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28 Sep 2019
Assume that a monopolist faces the following demand curve: P=250-2Q
Also, assume that the total cost function is given as TC=1/2 * Q^2
a) What would be the monopolist price and quantity? Calculate the profit for the monopolist and the DWL.
b) Calculate Lerner's index for this monopolist.
c) Now assume that the government imposes a specific tax of $1 per unit. What will happen to price and quantity? What will happen to the profit of the monopolist?
d) The government decides to impose a price ceiling on the monopolist to increase total welfare. What should be the optimal price ceiling?
Assume that a monopolist faces the following demand curve: P=250-2Q
Also, assume that the total cost function is given as TC=1/2 * Q^2
a) What would be the monopolist price and quantity? Calculate the profit for the monopolist and the DWL.
b) Calculate Lerner's index for this monopolist.
c) Now assume that the government imposes a specific tax of $1 per unit. What will happen to price and quantity? What will happen to the profit of the monopolist?
d) The government decides to impose a price ceiling on the monopolist to increase total welfare. What should be the optimal price ceiling?
Yusra AneesLv10
28 Sep 2019