A firm with market power faces the demand function q = 2,000 - 20P. The firm's total cost function is TC(q) = 20q + 0.02q² + 2,000. If the firm behaves like a perfectly price-discriminating monopolist, it will produce ____ units. A) 777.78 B) 888.89 C) 921.91 D) 940.63

Question

Quizplus · Accepted Answer

A perfectly price-discriminating monopolist produces where marginal cost equals marginal revenue. The marginal cost (MC) is derived from the total cost function, MC = 20 + 0.04q. The demand function can be rearranged to P = 100 - 0.05q, and the marginal revenue (MR) for a perfectly price-discriminating monopolist is the same as the demand curve, MR = 100 - 0.05q. Setting MC = MR gives 20 + 0.04q = 100 - 0.05q, solving for q gives q = 888.89.

A Firm with Market Power Faces the Demand Function Q