Exhibit 8-3 Demand and cost curves for GeneTech, a monopolist with a patented vaccine As shown in Exhibit 8-3, in order to maximize its profit, what price should GeneTech charge for its vaccine?

Question

Exhibit 8-3  Demand and cost curves for GeneTech, a monopolist with a patented vaccine  As shown in Exhibit 8-3, in order to maximize its profit, what price should GeneTech charge for its vaccine?

Quizplus · Accepted Answer

The profit-maximizing price for a monopolist is found where marginal revenue (MR) equals marginal cost (MC). In Exhibit 8-3, the marginal cost curve intersects the demand curve at the quantity of 4 million doses. At this quantity, the price GeneTech should charge is $35 per dose, which is where the MR curve intersects the demand curve. At this price and quantity, GeneTech's total revenue is $140 million (4 million doses sold at $35 per dose). Its total cost is $80 million, resulting in a profit of $60 million (TR - TC = $140 million - $80 million = $60 million). Any other price would result in a lower profit for GeneTech.

Exhibit 8-3 Demand and Cost Curves for GeneTech, a Monopolist with a Patented