Question

A monopolist faces the following demand curve, marginal revenue, total cost curve and marginal cost curve for its product: Q = 200 - 2P ; MR = 100 - Q ; TC = 5Q ; MC = 5

a) What level of output maximizes total revenue?. b) What is the profit maximizing level of output?. c) What is the profit maximizing price?. d) How much profit does the monopolist earn? e) Suppose that a tax of $5 for each unit produced is imposed by state government. What is the profit maximizing level of output? f) Suppose that a tax of $5 for each unit produced is imposed by state government. What is the profit maximizing price? g) Suppose that a tax of $5 for each unit produced is imposed by state government. How much profit does the monopolist earn?

Answer 1

a)

Total revenue is maximized where MR = 0

100 -Q = 0

Q = 100

Revenue is maximized where Q = 100

b)

Profit maximization condition:

MR = MC

100 -Q = 5

Q = 95

C)

Profit Maximizing Price:

P = 100 -0.5(95)

= 52.5

d)

Profit = TR - TC

= 95*52.5 -5(95)

= 4512.5