You are the manager of a monopoly and your cost function is C(Q) =2Q. You need to determine the optimal level of output for your firm, but the demand for your firm’s product will depend on whether or not a new tax law is passed. If passed, the new tax law will reduce income taxes and increase consumers’ disposable income. Politicians have determined that there is a 70% chance that the tax law will be passed and a 30% chance that will not. If the tax law is passed, the demand for your firm’s product will be: Q = 100 – 2P If the tax law is not passed, the demand for your firm’s product will be: Q = 75 – 3P How much output should you produce to maximize expected profits? q=45 What is the expected price for your product? (Round to one decimal place) What are your anticipated profits? (Round to the nearest whole number)

You are the manager of a monopoly and your cost function is C(Q) =2Q. You need to determine the optimal level of output for your firm, but the demand for your firm’s product will depend on whether or not a new tax law is passed. If passed, the new tax law will reduce income taxes and increase consumers’ disposable income. Politicians have determined that there is a 70% chance that the tax law will be passed and a 30% chance that will not. If the tax law is passed, the demand for your firm’s product will be: Q = 100 – 2P If the tax law is not passed, the demand for your firm’s product will be: Q = 75 – 3P How much output should you produce to maximize expected profits? q=45 What is the expected price for your product? (Round to one decimal place) What are your anticipated profits? (Round to the nearest whole number)

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter18: Asymmetric Information

Section: Chapter Questions

Problem 18.4P

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