timer Asked: Mar 30th, 2016

Question description

(24) Consider a monopoly facing the following demand curve: .

(A) Suppose the monopolist’s marginal costs are constant at MC = 90 (so ATC is also constant at 90). What quantity will the monopolist choose to produce in order to maximize profit?

(B) How much will its profit be?

(C) How much will the resulting deadweight loss be?

(D) What is the Lerner Index for the monopoly at its profit-maximizing choice?

(E) If the monopolist behaved in such a way that it chose the perfectly competitive market outcome, what price would it charge for its product and how much would it produce?

(F) How will the Lerner Index respond if the monopolist (acting as a monopoly) is able to reduce its marginal costs? How will the price elasticity of demand respond?

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