A monopolist’s cost function yields constant average and marginal costs, with AC = MC = 5. Thefirm faces a market demand curve given by P = 29 – Q.1. Calculate the marginal revenue curve, MR, for the monopoly.2. Solve for the monopolist’s profit maximizing output and price and calculate the Lerner’s index and the profit of the monopolist. Show the profit maximizing decision of the monopolist and the profits earned diagrammatically.3.  What would be the socially optimal output and price? (Hint: this would be the output and price if the industry were perfectly competitive. That is, the profit maximizing rule would be P =MC)4. Show diagrammatically the social cost of a monopoly. and Calculate the social cost of monopoly

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Asked Dec 12, 2019
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A monopolist’s cost function yields constant average and marginal costs, with AC = MC = 5. Thefirm faces a market demand curve given by P = 29 – Q.
1. Calculate the marginal revenue curve, MR, for the monopoly.
2. Solve for the monopolist’s profit maximizing output and price and calculate the Lerner’s index and the profit of the monopolist. Show the profit maximizing decision of the monopolist and the profits earned diagrammatically.
3.  What would be the socially optimal output and price? (Hint: this would be the output and price if the industry were perfectly competitive. That is, the profit maximizing rule would be P =MC)
4. Show diagrammatically the social cost of a monopoly. and Calculate the social cost of monopoly
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Market demand curve P = 29 – Q AC = MC = 5

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Step 3

The total revenue can be calculated by multiplying price with quantity. Thus, multiply th...

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TR = PQ = (29 – Q) Q TR = 29Q - Q² (1)

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