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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?

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Yusra Anees
Yusra AneesLv10
28 Sep 2019

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Taxing a monopolist. A monopolist faces an inverse demand function and experiences a the following cost of production. P(Q) = 11, 000 − 5Q C(Q) = 1, 000Q + 5Q 2

i. What is the optimal quantity and price for the monopolist?

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