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The global demand for cocoa can be represented with the following equation: P=50 - 0.25Q, where...

The global demand for cocoa can be represented with the following equation:

P=50 - 0.25Q, where P is the price (dollars per 100 lbs.), and Q is quantity. Furthermore, assume that cocoa can be produced at a constant marginal and average cost of $10 per unit of Q.

Cocoa producers have formed a cartel, aimed at realizing the monopoly price for cocoa.

Given the demand equation and marginal cost specified above, what is the monopoly price and quantity?

Solutions

Expert Solution

The monopoly sets MC=MR for profit maximization

MR = twice the slope of the demand curve

MR = 50-0.50Q

MC = 10

50-0.50Q = 10

50-10 = 0.50Q

Q = 40/0.50 = 80

P = 50-0.25*80 = 30

Rahul Sunny answered 2 years ago
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