Market conditions change for a monopolist with an original marginal cost of MC = 5 + 10Q. The inverse demand curve rotates from P = 40 - 5Q to P = 47 - 2Q. What happens to the profit-maximizing price following the rotation of the demand curve?

Question

Quizplus · Accepted Answer

The profit-maximizing condition for a monopolist is MR = MC, where MR is marginal revenue and MC is marginal cost. For the original demand curve, P = 40 - 5Q, the MR can be derived by doubling the slope of the demand curve, resulting in MR = 40 - 10Q. Setting MR equal to the original MC (5 + 10Q) and solving for Q gives the quantity, which can then be used to find the original profit-maximizing price. For the new demand curve, P = 47 - 2Q, the MR becomes 47 - 4Q. Setting this equal to MC and solving for Q gives the new quantity, which can be used to find the new profit-maximizing price. The correct answer involves calculating these prices before and after the demand curve rotation, showing an increase from $31.25 to $41.

Market Conditions Change for a Monopolist with an Original Marginal