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    Lerner-Index, price elasticity, profit

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    1) If the demand function is P = 10 - Q, the marginal cost is constant at 4 and the total cost function is 4Q, what is the profit maximizing monopoly output and profit? What is the price elasticity at the monopoly price and output?

    2) What is the Lerner-Index of Market Power for this monopoly at this price and output?

    3) What would the competitive market price and output be for this example?

    4) Graphically show and calculate the differences in consumer and producer surplus between the monopoly outcome and the competitive outcome. What is the difference to consumers between both outcomes?

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    Solution Summary

    Lerner-Index, price elasticity, and profit notes are encompassed.

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