A monopolist faces a demand curve P= 11 – Q, where P is measured in dollars...

A monopolist faces a demand curve P= 11 – Q, where P is measured in dollars per unit and Q in thousands of units. The monopolist has a constant average cost of $6 per unit. a. Draw the average and marginal revenue curves and the average and marginal cost curves. What are the monopolist’s profits-maximizing price and quantity? What is the resulting profit? Calculate the firm’s degree of market power using the lerner index. b. A government regulatory agency sets a price ceiling of $7 per unit. What quantity will be produced and what will the firms profit be? What happens to the degree of monopoly power? c. What price ceiling yields the largest level of output? What is the firm’s degree of monopoly power at this price?

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Rahul Sunny answered 1 year ago

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