5. A monopolist faces a demand curve P = 64−2Q. His marginal cost is MC =...

5. A monopolist faces a demand curve P = 64−2Q. His marginal cost is MC = 16.

(a) Draw a graph to illustrate and calculate the profit maximizing output and price.

(b) Calculate the efficient level of output and the DWL.

(c) Suppose the government gave the monopolist a subsidy of $4 per unit produced. Compute the profit maximizing output level and the deadweight loss associated with this new output. Explain intuitively why the DWL has changed.

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Expert Solution

Rahul Sunny answered 1 year ago

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