Question

Round any decimals to 2 decimal places.

Suppose that there is natural monopoly that faces a demand curve Q=100-P with total cost function C(Q)=400+15Q.

The profit maximizing quantity for the natural monopolist, in the presence of an average cost pricing rule is _______ units.

The profit maximizing price that will set by the monopolist that will be set in the presence of an average cost pricing rule is $______

The average total cost per unit at the profit maximizing level of output in the presence of an average cost pricing rule is $_______

The profit for the natural monopolist under the average cost pricing rule, given they set the profit maximizing price and level of output, is $_______

Answer 1

Solution:

Given that

demand curve :Q=100-P

Total cost function C(Q)=400+15Q

i) The profit maximising quantity = 42.5 units

ii)The profit maximising price = 57.5 units

iii)

iv)

The profit

  

  

Natural monopoly faces a demand curve -

Q=100-P

P=100-Q

TR=PQ=100Q-

MR=100-2Q

c(Q)=400+15Q

Mc=15

The profit- maximizing condition is -

  

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