A brand has the exclusive right to sell Star Wars t-shirts in Germany. The demand for...

A brand has the exclusive right to sell Star Wars t-shirts in Germany. The demand for these t-shirts is Q = 70 – P.

• a. If brand can produce at constant average costs of AC = 6, what output level will brand choose in order to maximize profits? What is the price at this output level? What are the brand’s profits? Show your result in the related graph.

• b. Assume instead that brand has a cost structure where total costs are described by TC = 0.25Q2 – 5Q + 300 With the monopolist facing the same market demand and marginal revenue, what price quantity combination will be chosen now to maximize profits? What will profits be? Show your result in the related graph.

• c. Assume now that a third cost structure explains the brand’s position, with total costs given by TC = 13Q3 – 5Q2 + 5Q + 250 Again, calculate brand’s price-quantity combination that maximizes profits. What will profit be? Show your result in the related graph.

Expert Solution

Given demand function: Q = 70 – P. The inverse demand function would be P = 70 - Q. Since this brand has exclusive right to sell t-shirts, so it is a monopoly. The equilibrium condition for a monopoly is MC = MR.

Rahul Sunny answered 1 year ago

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