1) Suppose inverse demand equation, P = 14 - Q, and marginal revenue, MR = 14...

1) Suppose inverse demand equation, P = 14 - Q, and marginal revenue, MR = 14 -2Q, and marginal cost, MC = 2 + Q. The price that the profit maximizing monopolist sets is $_ per unit. ____

2) Suppose inverse demand equation, P = 14 - Q, and marginal revenue, MR = 14 -2Q, and marginal cost, MC = 2 + Q. What quantity does a profit maximizing monopolist produce? _____

Solutions

Expert Solution

In order to maximize profit a monopolist will produce until MR>MC, up to a point at which MR = MC

Given, MR = 14-2q and MC = 2+q

MR = MC => 14-2q = 2+q => q = 12/3 = 4

Given, P = 14 - q,

Therefore, price when q = 4 => P = 14 - 4 = 10

1) Profit maximizing price = 10 per unit
2) Profit maximizing quantity = 4

Rahul Sunny answered 1 year ago

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