Suppose a monopolist has TC = 40 + 10Q + Q²,and the demand curve it faces is p = 130 - 2Q.What is the Lerner index of this profit-maximizing monopolist? A) 0.222 B) 0.35 C) 0.444 D) 0.50

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Quizplus · Accepted Answer

The monopolist maximizes profit where MR = MC. Here, MR = 130 – 4Q, and MC = 10 + Q². Setting these equal and solving for Q gives Q = 30. Plugging this back into the demand curve gives a price of p = 70. The monopolist's markup over marginal cost is (p - MC) / p = (70 - 50) / 70 = 0.286. The Lerner index is the reciprocal of this, so L = 1 / 0.286 = 3.5. Dividing this by (3.5 + 1) gives L = 0.444.

Suppose a Monopolist Has TC = 40 + 10Q