Scenario 10.9:
Maui Macadamia Inc. has a monopoly in the macadamia nut industry. The demand curve, marginal revenue and marginal cost curve for macadamia nuts are given as follows:
P = 360 - 4Q MR = 360 - 8Q MC = 4Q
-Refer to Scenario 10.9. At the profit maximizing level of output, what is the level of producer surplus?

Question

Quizplus · Accepted Answer

To find the profit-maximizing level of output, we set MR = MC: 360 - 8Q = 4Q, solving for Q gives Q = 30. To find producer surplus, we need to calculate the area of the triangle formed by the MC curve from 0 to Q and the price at Q. The price at Q can be found from the demand curve: P = 360 - 4(30) = 240. The cost to produce 30 units is the area under the MC curve, which is 1/2 * 30 * 120 = 1,800 (since MC = 4Q, at Q=30, MC = 120). Producer surplus is total revenue minus total cost. Total revenue at Q = 30 is 30 * 240 = 7,200. Thus, producer surplus = 7,200 - 1,800 = 5,400.

Scenario 10.9: Maui Macadamia Inc. Has a Monopoly in the Macadamia Nut