a) Derive the monopoly price, quantity, and profits. b) Calculate Lerner Index under the monopoly equilibrium. c) Now suppose the government sets the maximum price at $40. What output level and price level will the monopolist choose to maximize profits? What is the deadweight loss?

Microeconomic Theory
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ISBN:9781337517942
Author:NICHOLSON
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Chapter14: Monopoly
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They live in America

A monopolist faces a market demand curve given by Q(p) = 70 – p. Its
total costs are described by TC(Q) = 3ố0 Q³ – 5Q + 250.
1
a) Derive the monopoly price, quantity, and profits.
b) Calculate Lerner Index under the monopoly equilibrium.
c) Now suppose the government sets the maximum price at $40. What output
level and price level will the monopolist choose to maximize profits? What is
the deadweight loss?
d) Suppose the government sets the maximum price at $30. What output
level and price level will the monopolist choose to maximize profits? What is
the deadweight loss?
Transcribed Image Text:A monopolist faces a market demand curve given by Q(p) = 70 – p. Its total costs are described by TC(Q) = 3ố0 Q³ – 5Q + 250. 1 a) Derive the monopoly price, quantity, and profits. b) Calculate Lerner Index under the monopoly equilibrium. c) Now suppose the government sets the maximum price at $40. What output level and price level will the monopolist choose to maximize profits? What is the deadweight loss? d) Suppose the government sets the maximum price at $30. What output level and price level will the monopolist choose to maximize profits? What is the deadweight loss?
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