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 in addition to the tax, a business license is required to stay in business. The license costs $1000. What is the profit maximizing level of output?

Question

Quizplus · Accepted Answer

To find the profit-maximizing level of output, we set marginal revenue (MR) equal to marginal cost (MC). From the given equations, MR = 100 - Q and MC = 5. Setting MR = MC gives 100 - Q = 5, solving for Q gives Q = 95. However, the question asks for the profit-maximizing level of output considering an additional fixed cost (the business license fee of $1000). Fixed costs do not affect the profit-maximizing level of output because they do not change with the quantity of output produced. Therefore, the profit-maximizing level of output remains at 95 units (option C), not option B as initially indicated. This correction addresses the mistake in the selection process.

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