A monopolist faces linear inverse demand $P = a - b Q$ and constant marginal cost, $c$. Which of the following gives a correct formula for the monopolist's profit maximizing price?

Question

Quizplus · Accepted Answer

The profit-maximizing price for a monopolist is given by setting marginal revenue equal to marginal cost. The marginal revenue can be derived from the inverse demand function $P = a - bQ$, which gives $MR = a - 2bQ$. Setting $MR = MC$, and given that $MC = c$, we solve for $Q$ and then substitute back into the demand equation to find $P$. This process results in $P = (a + c) / 2$, which matches choice C.

A Monopolist Faces Linear Inverse Demand P=a−bQP = a - b QP=a−bQ

A Monopolist Faces Linear Inverse Demand $P = a - b Q$