15 The Lerner index measures monopoly power by using L--1/Ed, where Ed is the pr

Question

15 The Lerner index measures monopoly power by using L--1/Ed, where Ed is the price elasticity of the market demand. Accordingly, a monopolist a. enjoys more monopoly power if the market demand is more elastic. b. enjoys more monopoly power if the market demand is less elastic Creaches a maximum monopoly power if the market demand price elasticity is -1 reaches a minimum monopoly power if the market demand price elasticity is-1. Answer questions 16-21 based on the following information. The demand function faced by a monopolist is given by: P 54-Q. The firm's cost function is given by: TC+ 16 In this situation the monopoly's profit maximizing output level is a. 12 16 24 d. 30 3o - 17 In this situation the monopoly's profit maximizing price is 42 S4-1 C. 30 d. 24 18 In this situation, the monopoly' profit is 278 230 c. 156 d. 188 19 In this situation, the consumer surplus is a. 78 b. 72 60 20 In this situation, the deadweight loss from monopoly is 16 20 c. 24 d. 28 a. 21 With first-degree price discrimination, the monopolist would produce until P-MC and extract all consumer surplus. What is the new monopoly profit? a. 326 b. 208 c. 284 288

Explanation / Answer

Q15
Answer
Option c
the Lerner index is between 0 and 1. the monopoly power is highest when the LI is equal to 1
so if e=-1 then LI=(-1)/(-1)=1
the monopoly have maximum power if the elasticity is -1
Q16
the monopoly produces at MR=MC
MR=54-2Q..........the MR curve is double sloped than demand curve
MC=dC/dQ=6+2Q
equating both
54-2Q=6+2Q
4Q=48
Q=12
option a

Q17
P=54-12=42...........from demand function
option a
Q18
Profit=TR-TC
TR=P*Q=42*12=504
TC=100+6Q+Q^2
=100+6*12+12^2
=316
Profit=504-316
=188
option d

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