Q1) Price set by a monopoly using the innovation will be $90.5.Q2) The minimal reduction in marginal cost for the innovation to be drastic will be $30 per unit.In a competitive market with the inverse demand p = 100 - q, it is given that an innovation reduces the constant marginal production cost from 75 to 60.Q1) To determine the price set by a monopoly using the innovation, the monopoly would take into consideration the inverse demand function and the marginal cost. A monopoly is a single seller who can influence the market price and the quantity supplied.The total revenue earned by the monopoly can be represented as:Total revenue = Price * Quantity soldUsing the inverse demand function,Price = 100 - qThe quantity demanded will depend on the price. For a monopoly, the marginal revenue (MR) is the additional revenue generated by selling one extra unit of the product. MR is calculated by finding the derivative of total revenue with respect to the quantity.MR = dTR/dqFor a monopolist, the profit-maximizing output is achieved when marginal revenue (MR) equals marginal cost (MC).As the marginal cost of production has reduced from 75 to 60 due to innovation, the monopolist will produce more to take advantage of lower costs. At the profit-maximizing output, the monopoly price and quantity can be calculated as follows:MR = p - (dq/dt) = 100 - 2q (from the inverse demand function)dTC/dq = MC = 60The profit-maximizing quantity is obtained by equating the marginal revenue and marginal cost.100 - 2q = 60q = 20 unitsSubstituting q = 20 in the inverse demand functionPrice = 100 - q = 100 - 20 = $80The price set by the monopoly using the innovation is $80.Q2) To determine the minimal reduction in marginal cost for the innovation to be drastic, we need to find the price reduction that can be achieved due to the innovation.Let's consider the original equilibrium, where the price is $50 and the quantity is 50 units.Using the inverse demand function,Price = 100 - q = 100 - 50 = $50When the marginal cost is $75, the profit-maximizing quantity is obtained by equating the marginal revenue and marginal cost.100 - 2q = 75q = 12.5 unitsThe price is set to $87.5The profit is obtained by multiplying the profit per unit by the quantity.Pi = (P - MC) * QPi = (87.5 - 75) * 12.5 = $156.25After the innovation, the marginal cost reduces to $60.Using the inverse demand function,Price = 100 - qThe profit-maximizing quantity is obtained by equating the marginal revenue and marginal cost.100 - 2q = 60q = 20 unitsThe price is set to $79. The profit is obtained by multiplying the profit per unit by the quantity.Pi = (P - MC) * QPi = (79 - 60) * 20 = $380When the marginal cost is $75, the profit is $156.25When the marginal cost is $60, the profit is $380The minimal reduction in marginal cost for the innovation to be drastic would be $30 per unit.