Question

43. A profit-maximizing monopolist faces a demand function given by q = 1000 - 20p, where p is the price of her output in dollars. She has a constant marginal cost of $20 per unit of output. In an effort to induce her to increase her output, the government agrees to pay her a subsidy of $10 for every unit that she produces. She will: A) increase her price and lower her output. B) decrease her price by $5 per unit. C) decrease her price by $10 per unit. D) decrease her price by more than $10 per unit but by less than $16 per unit. E) decrease her price by more than $16 per unit.

          43. A profit-maximizing monopolist faces a demand function given by q = 1000 - 20p, where p is the price of her output in dollars. She has a constant marginal cost of $20 per unit of output. In an effort to induce her to increase her output, the government agrees to pay her a subsidy of $10 for every unit that she produces. She will:
A) increase her price and lower her output.
B) decrease her price by $5 per unit.
C) decrease her price by $10 per unit.
D) decrease her price by more than $10 per unit but by less than $16 per unit.
E) decrease her price by more than $16 per unit.

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Added by Kristen H.

Principles of Economics

Gregory Mankiw 8th Edition

Instant Answer

Solved by Expert Oluwadamilola Ameobi

08/04/2023

Step 1

First, we need to find the inverse demand function, which is the price as a function of quantity. To do this, we can solve the demand function for p: $q = 1000 - 20p$ $20p = 1000 - q$ $p = \frac{1000 - q}{20}$ Show more…

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43. A profit-maximizing monopolist faces a demand function given by q = 1000 - 20p, where p is the price of her output in dollars. She has a constant marginal cost of $20 per unit of output. In an effort to induce her to increase her output, the government agrees to pay her a subsidy of $10 for every unit that she produces. She will: A) increase her price and lower her output. B) decrease her price by $5 per unit. C) decrease her price by $10 per unit. D) decrease her price by more than $10 per unit but by less than $16 per unit. E) decrease her price by more than $16 per unit.

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