Answer to Question #86865 in Microeconomics for shum

Question

A monopolist has a constant marginal cost of 16. Consumers' inverse demand is P = 45 - 5Q. The monopolist runs a persuasive advertising campaign that costs 11 and increases consumer demand to P = 50 - 5Q.

(a) What is the gain (or loss) in the firms profits caused by the advertising campaign?

(b) When consumers' pre-advertising preferences are used to calculate welfare, what is the welfare gain (or loss) caused by the advertising campaign?

(c) When consumers' post-advertising preferences are used to calculate welfare, what is the welfare gain (or loss) caused by the advertising campaign?

Answer 1

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