Question
In: Economics
Scenario A: A monopolist faces the following demand curve, marginal revenue curve, total cost curve for its product:
Scenario A: A monopolist faces the following demand curve, marginal revenue curve, total cost curve for its product:
Q=3500-5p
MR= 250-Q
TC=15Q
MC=100
What level of output maximizes total revenue?
What is the profit maximizing level of output?
What is profit maximizing price?
How much profit does the monopolist earn?
Suppose that a tax of $10 for each unit produced is imposed by state government. What is the profit maximizing level of output.
Solutions
Expert Solution
(a)
P = (3500 - Q)/5 = 700 - 0.2Q
TR = PQ = 700Q - 0.2Q2
Reveue is maximized when MR = dTR/dQ = 0
700 - 0.4Q = 0
Q - 700/0.4 = 1750
(b)
Profit is maximized when MR = MC.
700 - 0.4Q = 100
0.4Q = 600
Q = 1500
(c)
P = 700 - 0.2 x 1500 = 700 - 300 = 400
(d)
TR = 400 x 1500 = 600,000
TC = 15Q = 15 x 1500 = 22,500
Profit = TR - TC = 600,000 - 22,500 = 577,500
(e)
Tax increases MC by $10 and new MC = 10 + 100 = 110
Setting MR = new MC,
700 - 0.4Q = 110
0.4Q = 590
Q = 1475
Rahul Sunny answered 2 years agoRelated Solutions
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