SCENARIO: A MONOPOLIST'S MARKET
A monopolistically competitive firm faces demand given by this
Equation: P = 50 Q.It has no fixed costs and its marginal cost
Is $20 per unit.
Reference: Ref 62
(Scenario: A Monopolist's Market) What is the value of the firm's
Monopoly profits when it sets a price that maximizes its
Monopoly profits?
A)$125
B)$300
C)$425
D)$225

Question

SCENARIO: A MONOPOLIST'S MARKET
A monopolistically competitive firm faces demand given by this
Equation: P = 50 ​ Q.It has no fixed costs and its marginal cost
Is $20 per unit.
Reference: Ref 6­2
(Scenario: A Monopolist's Market) What is the value of the firm's
Monopoly profits when it sets a price that maximizes its
Monopoly profits?
A)$125
B)$300
C)$425
D)$225

Quizplus · Accepted Answer

To maximize profits, the monopolist sets marginal revenue (MR) equal to marginal cost (MC). The demand equation is P = 50 - Q, so total revenue (TR) is P*Q = (50 - Q)Q = 50Q - Q^2. The marginal revenue is the derivative of TR, MR = 50 - 2Q. Setting MR = MC gives 50 - 2Q = 20, so Q = 15. The price is P = 50 - 15 = 35. Profit is (P - MC) * Q = (35 - 20) * 15 = 225.

SCENARIO: a MONOPOLIST'S MARKET