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In: Economics

Suppose the inverse demand curve for the monopoly firm Acme Inc. is P = 10 –...

Suppose the inverse demand curve for the monopoly firm Acme Inc. is P = 10 – 0.1Q, and that Acme’s total cost is C(Q) = 100 + 2Q.

a. (8) Find the monopoly’s price, output, and profit.

b. (6) Carefully graph the curves necessary to illustrate the firm’s price and output decision, labeling both curves and axes. Show the deadweight loss.

c. (8) Suppose Acme realizes that its market demand represents the demand of 10 identical consumers, each with an individual inverse demand curve of p = 10 – q. Find the two-part tariff that will maximize Acme’s profits, and calculate those profits, assuming that Acme still has the same total costs. Do these profits differ from those you found in part a? Why or why not?

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Expert Solution

Rahul Sunny answered 2 years ago
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