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    fixed costs of the monopolist

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    2) A monopolist faces the following demand function for its product:

    Q = 45 - 5P

    The fixed costs of the monopolist are $12 and the monopolist incurs variable costs of $5.00 per unit.

    a) What is the profit-maximizing level of price and quantity for this monopolist? What will profits be at this price and output level?
    b) If the government imposes a franchise tax on the firm of $10, what will be the profit-maximizing level of price, output, and profits?
    c) If the government imposes an excise tax of 50 cents per unit of output sold, what is the impact on the profit-maximizing level of price, outputs and profits?
    d) If the government imposes a ceiling of $6 on the price of the firm's product, what output will the firm produce and what will be total profits?

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    Solution Preview

    a)
    MC=constant Variable cost=$5.00
    For MR, we have TR = P*Q=(45-Q)/5*Q
    MR=dTR/dQ=9-0.4Q
    Equating the two we get 9-0.4Q=5
    Solving we get ...

    Solution Summary

    The fixed costs of the monopolist are examined.

    $2.19