Monopoly Problem. Consider a monopoly with constant marginal costs of $20. Consumers in the market for this monopoly’s product have demand of Q = 100 - 2P.
-Refer to Monopoly Problem.This monopoly will receive producer surplus of
A) $0
B) $225
C) $450
D) $900

Question

Quizplus · Accepted Answer

The producer surplus is the difference between the price and the marginal cost at each quantity produced. In this case, the marginal cost is constant at $75, so the producer surplus can be found by subtracting the marginal cost from the price and multiplying by the quantity sold. The price is $150, so the producer surplus at a quantity of 3 is ($150 - $75) x 3 = $225. The monopoly can maximize its profit by producing the quantity at which marginal revenue equals marginal cost, which in this case is a quantity of 3. Therefore, the monopoly will receive a maximum producer surplus of $225.