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HW1a - Econ 419 Industrial Organization Jura Liaukonyte...

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Econ 419 – Industrial Organization Jura Liaukonyte Homework 1 - ANSWERS Due Wed, Jan 31 in class (note: extended deadline) Submit ONE version per study group. Write legibly. I reserve a right not to grade messy or illegible answers. Include a title page, listing the homework number and the names of all members of the study group. PART I – Analytical Problems 1. Assume that a monopolist sells a product with a total cost function 2 400 TC Q = + The market demand curve is given by the equation 500 P Q = . a) Find the profit-maximizing output and price for this monopolist. Is the monopolist profitable? b) Calculate the price elasticity of demand at the monopolist's profit-maximizing price. Also calculate the marginal cost at the monopolist's profit-maximizing output. c) Calculate the Lerner Index of Market power. Verify that Inverse Elasticity Pricing Rule holds at your calculated equilibrium price and quantity. a) To find the profit-maximizing price and quantity, set MR MC = .
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