Laura runs a nightclub called the 'Two Standard Drinks'.Given the popularity and cache of the club, she has a monopoly position in the market.The market demand curve is given by P = 120 - q.Laura has a marginal cost per drink of MC = 2q and a fixed cost FC = $150.If Laura charges the same price to all customers, what are Laura's profit-maximizing price P^M and quantity q^M?

Question

Quizplus · Accepted Answer

To find the profit-maximizing quantity, set marginal revenue (MR) equal to marginal cost (MC). The demand curve is P = 120 - q, so total revenue TR = P*q = 120q - q^2. MR is the derivative of TR, MR = 120 - 2q. Set MR = MC: 120 - 2q = 2q, solving gives q = 30. Substitute q = 30 into the demand curve to find P: P = 120 - 30 = 90.

Laura Runs a Nightclub Called the 'Two Standard Drinks