Suzanne is the monopoly seller of an illegal product in a particular city.Her marginal cost is $10 per unit and she has no other costs.She faces a demand curve of P = 130 - q, and she charges a linear price to her clients.Unfortunately for Suzanne, in the city there is a corrupt government official who has the power to shut Suzanne's operation down.This official, however, is willing to take a bribe and let Suzanne continue to sell.What is the highest bribe that Suzanne is willing to pay?

Question

Quizplus · Accepted Answer

To find the highest bribe Suzanne is willing to pay, we first determine her profit without paying a bribe. Profit is maximized where marginal revenue (MR) equals marginal cost (MC). The demand curve is P = 130 - q, so the total revenue (TR) is P*q = (130 - q)*q. The marginal revenue (MR) is the derivative of TR with respect to q, which is MR = 130 - 2q. Setting MR equal to MC ($10) to find the quantity that maximizes profit: 130 - 2q = 10, solving for q gives q = 60. The price (P) at this quantity is P = 130 - 60 = $70. The total profit is then (P - MC) * q = (70 - 10) * 60 = $3600. This is the maximum profit Suzanne can make, and thus the highest bribe she would be willing to pay to continue her operation.

Suzanne Is the Monopoly Seller of an Illegal Product in a Particular