You are the manager of a monopolistically competitive firm, and your demand and cost functions are given by Q= 36 - 4P and C(Q)=4+4Q+Q^2.Find the inverse demand function for your firm’s product. Determine the profit-maximizing price and level of production. Calculate your firm’s maximum profits. What long-run adjustments should you expect? Explain. What is the value of the consumer surplus (under monopoly)? Calculate the deadweight loss (under monopoly). What is the value of the Lerner Index? Explain what this number means.

A monopolistic firm maximizes profit by producing at level of output where MR = MC

Answered: You are the manager of a…

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter18: Asymmetric Information

Section: Chapter Questions

Problem 18.4P

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You are the manager of a monopolistically competitive firm, and your demand and cost functions are given by Q= 36 - 4P and C(Q)=4+4Q+Q^2.
1. Find the inverse demand function for your firm’s product.
2. Determine the profit-maximizing price and level of production.
3. Calculate your firm’s maximum profits.
4. What long-run adjustments should you expect? Explain.
5. What is the value of the consumer surplus (under monopoly)?
6. Calculate the deadweight loss (under monopoly).
7. What is the value of the Lerner Index? Explain what this number means.

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