Question

1. Recognizing the positive externalities the government enacts a policy to subsidize education. The policy gives $50 to a student if they buy. This means the net price a student pays P_student = P – 50, where P is the price the monopolist charges. Thus Qd = 1000 – 2(P – 50) or Qd = 1000 – 2P + 100 or Qd = 1100 – 2P. This implies P = 550 - .5Q

• Remembering Revenue = PQ, what is the equation for marginal revenue for the monopolist?
• What Q will the monopolist produce now? And what will P be? And P_student? What is Total Surplus under this situation? DON’T FORGET THE GOVERNMENT SPENDS $50 PER DEGREE BOUGHT.

Answer 1