Illustrate what would the lerner index for the monopoly be

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Reference no: EM13112651

Q. Suppose that the (inverse) market demand curve for a new drug, Adipose-Off, designed to painlessly reduce body fat, is represented by the equation P=100-2Q, where P is the price in dollars per dose and Q is the annual output. (The marginal revenue curve is thus given by the equation MR=100-4Q). Suppose also that there is a single supplier of the drug who faces a marginal cost, as well as average cost, of producing the drug, equal to a constant $20 per dose and the government offers a subsidy of $5 per unit. Illustrate what would happen to the monopolist's profit-maximizing output and price? Illustrate what would happen to consumer and producer surplus? Explain how much money would the government collect due to the tax? Illustrate what would be the size of the resulting deadweight loss relative to the competitive outcome? Illustrate what would the Lerner Index for the monopoly be?

Reference no: EM13112651

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