2. (a) A monopolist has discovered that the inverse demand function of a person with income Y for the monopolist's product is P = 0.002Y-Q where P is the price, Y the income, and Q is the output. The monopolist can observe the incomes of its consumers and hence vary its price accordingly. The monopolist has a total cost function C(Q) = 100Q. Calculate the profit maximising price as a function of the consumer's income Y carefully explaining all the steps in the derivation of the formula.
2. (a) A monopolist has discovered that the inverse demand function of a person with income Y for the monopolist's product is P = 0.002Y-Q where P is the price, Y the income, and Q is the output. The monopolist can observe the incomes of its consumers and hence vary its price accordingly. The monopolist has a total cost function C(Q) = 100Q. Calculate the profit maximising price as a function of the consumer's income Y carefully explaining all the steps in the derivation of the formula.
Chapter9: Monopoly
Section: Chapter Questions
Problem 7SQP
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Transcribed Image Text:2.
(a) A monopolist has discovered that the inverse demand function of a person with income Y
for the monopolist's product is P = 0.002Y-Q where P is the price, Y the income, and Q is the
output. The monopolist can observe the incomes of its consumers and hence vary its price
accordingly. The monopolist has a total cost function C(Q) = 100Q. Calculate the profit
maximising price as a function of the consumer's income Y carefully explaining all the steps
in the derivation of the formula.
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