Question C2: Consider a monopolist that faces the following demand for its product Q = Pe where Q is the quantity demand

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Question C2 Consider A Monopolist That Faces The Following Demand For Its Product Q Pe Where Q Is The Quantity Demand 1 (110.39 KiB) Viewed 29 times

Question C2: Consider a monopolist that faces the following demand for its product Q = Pe where Q is the quantity demanded, P is the price, and e < −1 is a constant. (a) [4 marks] Show that the price elasticity of demand faced by the monopolist is equal to the constant e regardless of the price charged. = (b) [6 marks] Let the monopolist's total cost function be C(Q) 10Q. Use this to determine the profit-maximizing quantity and price for this firm. Fully illustrate this monopoly equilibrium in a diagram. (c) [10 marks] Now suppose that the government places a tax of t on each unit that the monopolist produces. What is the monopolist's profit-maximizing quantity and price now? Illustrate this new equilibrium in your diagram for part (b). Is the increase in price paid by consumers less than, equal to, or greater than the tax itself?