1. A monopolist with cost function c(Q) = faces an inverse demand function given by P(Q) = (a) Find the elasticity of demand with respect to price. (b) Assuming that the monopolist uses MR = MC pricing rule, find his profit maximizing price, p", and output level, q. (e) Find the marginal cost at q" and caleulate the Lerner index. (d) Does the monopolist's market power depend on his cost curve? In particu- lar, does it depend on a? Is your answer surprising?
1. A monopolist with cost function c(Q) = faces an inverse demand function given by P(Q) = (a) Find the elasticity of demand with respect to price. (b) Assuming that the monopolist uses MR = MC pricing rule, find his profit maximizing price, p", and output level, q. (e) Find the marginal cost at q" and caleulate the Lerner index. (d) Does the monopolist's market power depend on his cost curve? In particu- lar, does it depend on a? Is your answer surprising?
Chapter14: Monopoly
Section: Chapter Questions
Problem 14.1P
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