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In: Economics

The global demand for cocoa can be represented with the following equation: P=50 - 0.25Q, where...

  1. The global demand for cocoa can be represented with the following equation:

P=50 - 0.25Q, where P is the price (dollars per 100 lbs.), and Q is quantity. Furthermore, assume that cocoa can be produced at a constant marginal and average cost of $10 per unit of Q.

Cocoa producers have formed a cartel, aimed at realizing the monopoly price for cocoa.

Given the demand equation and marginal cost specified above, what is the monopoly price and quantity?

The monopoly sets MC=MR for profit maximization

MR = twice the slope of the demand curve

MR = 50-0.50Q

MC = 10

50-0.50Q = 10

50-10 = 0.50Q

Q = 40/0.50 = 80

P = 50-0.25*80 = 30

  1. In perfect competition, the market price will equal marginal cost. What’s the competitive price and quantity and how does that compare to the monopoly price and quantity?

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Expert Solution

Rahul Sunny answered 2 years ago
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