Suppose XER Inc. is a monopoly that produces a drug that cures the common cold. The...

Suppose XER Inc. is a monopoly that produces a drug that cures the common cold. The weekly (inverse) market demand* for its product takes the form P=580-6Q, where Q is measured as the number of tablets. The marginal and average costs are $100 per tablet.

Solve for:

(a) Solve for the weekly level of output (measured in the number of tablets per week) that will be produced by XER Inc. if it maximizes profits

(b) Solve for

(i) the profit-maximizing price-per tablet charged,

(ii) total weekly revenue and

(iii) the amount of economic profits earned by XER, Inc.

(c)

(i) Calculate the weekly quantity sold

(ii) Calculate the total weekly revenues for XER, Inc. IF the firm operated under perfectly competitive market conditions (i.e., assume that that XER faces the same demand curve but that, as in competitive markets, the equilibrium price and quantity is where P=MC.)

(d)

Compare answers to sub-questions a & b to those for sub-question c and assess the differences in output, prices, total revenues, total costs and economic/excess profits under the two different market conditions.

Expert Solution

Rahul Sunny answered 7 months ago

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