Home » Question: Consider a profit-maximizing monopolist who produces one product. As in the traditional monopoly model the firm chooses quantity, Q.

# Question: Consider a profit-maximizing monopolist who produces one product. As in the traditional monopoly model the firm chooses quantity, Q.

Question: Consider a profit-maximizing monopolist who produces one product. As in the traditional monopoly model the firm chooses quantity, Q. However, this firm also chooses a level of lobbying, L, which influences the demand for its product. Specifically, inverse demand is given by p(Q)=120+L-2Q. The firm faces a total cost, TC(Q,L)=10+(1/2Q^2)+(1/2L^2). In equilibrium, what are the optimal quantity, Q*, price, p*, and amount of lobbying, L*?

Question: Consider a monopolist with inverse demand p(Q)=74-3Q and costs of C(q)=2q. A.) Would an industry wide price ceiling of \$35 be effective in this market? B.) What price and quantity do you expect to observe if the ceiling is imposed, and what are the monopolist’s profits? C.) How much would the monopolist pay to have the price ceiling removed?

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