Question
In: Economics
3. James is a producer in a monopoly industry. His demand curve, total revenue, curve, marginal...
3. James is a producer in a monopoly industry. His demand curve, total revenue, curve, marginal revenue curve and total cost curve are given as follows:
Q=100-4P
TR=25Q-0.25Q2
MR=25-0.5Q
TC=6Q
MC=6
a.How much output will James produce?
b. What price will James charge per unit of output?
c. How much profit will James make?
d. If this was a competitive firm. Calculate the profit maximizing price and quantity and compare with price and quantity under monopoly.
e. Calculate the amount of deadweight loss incurred because James is a monopolist and not perfectly competitive firm.
Solutions
Expert Solution
a) Setting MR=MC
25-0.5Q=6
25-6=0.5Q
Q=19/0.5 = 38
b) As Q=100-4P
100-4P=38
100-38=4P
P=62/4= 15.5
C) TR=38*15.5 = 589
TC=6(38) = 228
Profit = TR-TC = 589-228 = 361
d) Setting P=MC
Q=100-4P or P=100-Q/4 = 25-0.25Q
25-0.25Q=6
Q=19/0.25 = 76
P=MC=6
e) DWL = 0.5*(76-38)*(15.5-6)
=180.5
Rahul Sunny answered 2 years agoRelated Solutions
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