A monopolist faces linear inverse demand P = a - bQ and constant marginal cost, c. The term a increases by amount Δa. By how much does the monopolist's optimal price increase?

Question

Quizplus · Accepted Answer

The monopolist's optimal price increases by Δa/2 because the price is set at the midpoint between the demand curve and the marginal cost, so the increase in price is half of the increase in the intercept of the demand curve.

A Monopolist Faces Linear Inverse Demand P = a -