Scenario 10.2:
A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost curve for its product:
Q = 200 - 2P
MR = 100 - Q
TC = 5Q
MC = 5
-Refer to Scenario 10.2. Suppose that a tax of $5 for each unit produced is imposed by state government. How much profit does the monopolist earn?

Question

Quizplus · Accepted Answer

The monopolist's profit after the tax can be calculated by finding the quantity produced and sold, the price, and the total cost including the tax. The marginal cost (MC) with the tax becomes $10 ($5 original MC + $5 tax). To maximize profit, set MC equal to MR and solve for Q: $10 = 100 - Q, so Q = 90. The price (P) can be found from the demand equation: 90 = 200 - 2P, so P = $55. The total cost (TC) including the tax is $10 * 90 = $900. The total revenue (TR) is P * Q = $55 * 90 = $4950. Profit is TR - TC, so $4950 - $900 = $4050.

Scenario 10.2: A Monopolist Faces the Following Demand Curve, Marginal Revenue Curve