Question: Consider a monopoly that faces the demand curve

P = 40 – Q so that MR = 40 – 2Q

and has total costs given by

TC = 4Q so that MC = 4.

a. Determine and illustrate this monopoly’s equilibrium output, price, markup, and profit. (3 points)

b. If the government now imposes a per-unit tax of 16 for each unit of output produced, determine and illustrate the monopoly’s new equilibrium output, price, markup, and profit. (2 points)