Question

In: Economics

1. A monopolist has average cost AC = .2Q - 4 + 100/Q and marginal cost...

1.

A monopolist has average cost AC = .2Q - 4 + 100/Q and marginal cost MC = .4Q - 4. Market demand is Q = 44 - P, implying that the firm’s marginal revenue is MR = 44 - 2Q. Its profit-maximizing output is

a. 92

b. 46

c. 40

d. 20

2.

Consider the same monopoly situation as in the previous question. The firm’s profit will be

a. 760

b. 660

c. 830

d. 380

Expert Solution

(1)

The correct answer is (d) 20

In order to maximize profit a firm produces that quantity at which Marginal revenue(MR) = Marginal cost(MC).

where MR = 44 - 2Q and MC = 0.4Q - 4.

MR = MC => 44 - 2Q = 0.4Q - 4 => 2.4Q = 48 => Q = 20.

Hence, Its profit-maximizing output is 20 units.

Hence, the correct answer is (d) 20.

(2)

The correct answer is (d) 380

Profit = TR - TC

TR = Total Revenue = PQ = (44 - Q)*Q = (44 - 20)*20 = 480

TC = Total Cost = AC*Q = (.2*20 - 4 + 100/20)*20 = 100

Thus, Profit = TR - TC = 480 - 100 = 380.

Hence, The firm’s profit will be 380

Hence, the correct answer is (d) 380

Rahul Sunny answered 2 years ago

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