1) With monopoly, we only specify long run cost functions because we are not as interested in the shut down decision and we don't have firm entry to compete away profit. Still, to make the math work, our monopolist cost functions often have fixed costs. Let's solve the following question: EagleSOFT has developed a computer program that will send UNT sports teams scores directly to purchaser's phones as text messages. Demand and total cost for the software company is described by the following equations: Demand: P = 70 -0.05Q, Cost: C = 4000 + 10Q. a) What is the firm's level of output, the price they should charge, and their profit? b) What is the demand elasticity and Lerner index at the level of output?
1) With monopoly, we only specify long run cost functions because we are not as interested in the shut down decision and we don't have firm entry to compete away profit. Still, to make the math work, our monopolist cost functions often have fixed costs. Let's solve the following question: EagleSOFT has developed a computer program that will send UNT sports teams scores directly to purchaser's phones as text messages. Demand and total cost for the software company is described by the following equations: Demand: P = 70 -0.05Q, Cost: C = 4000 + 10Q. a) What is the firm's level of output, the price they should charge, and their profit? b) What is the demand elasticity and Lerner index at the level of output?
Chapter13: Monopoly And Antitrust
Section: Chapter Questions
Problem 7P
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