A monopolist is facing the following demand curve P = 50 − 5Q. The monopolist has...

A monopolist is facing the following demand curve P = 50 − 5Q. The monopolist has the following marginal cost MC = 10. The monopolist knows exactly the willingness to pay of each individual consumer and charge consumers individual prices. Calculate the monopolist’s profit (assuming FC=0).

(a) π=40
(b) π=80
(c) π = 160

(d) None of the above.

Expert Solution

Answer
Monopolist charge price equal to the willingness to pay of the consumers, so the profit is equal to the consumer surplus at the output level of perfect competition
it produces at MC=P
50-5Q=10
5Q=40
Q=8
P=10
CS=0.5*(Y-axis intercept of the demand curve -P)*Q
=0.5*(50-10)*8
=160
the profit is $160
Option c

Rahul Sunny answered 2 years ago

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