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5: Make the assumption that a monopolist is selling a product with inverse demand of  p =...

5: Make the assumption that a monopolist is selling a product with inverse demand of  p = 12 – 0.5q,  p = price of the product while  q = quantity of the product,. The monopolist’s marginal and average cost is 6.

(a) Find the profit maximising level of q and p, and the firm’s profit. Find the profit maximising level of output and profit if the maximum price that can be charged per unit is (i) p = 7, (ii)  p = 10.

(b) What effect on the firm's price and output would a tax of 2 per unit have? What if the tax was 6 per unit?

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