Scenario: Tobac Co. is a monopolist in the cigarette market in Nicotiana Republic, where the U.S. dollar is used as the official currency. The firm faces the demand curve shown below. The firm has a constant marginal cost of $2.00 per pack. The fixed cost of the firm is $50 million. To answer the questions below, it is useful to know that the equation of the (inverse) demand curve is P = 8 - 0.04Q, where Q is the quantity demanded (in millions of packs) and P is the price per pack (in $). Also, you should draw in the marginal revenue curve.

-Refer to the scenario above.If the quantity sold is 50 million packs,then the firm's total revenue is ________ and the total cost is ________.

Question

Scenario: Tobac Co. is a monopolist in the cigarette market in Nicotiana Republic, where the U.S. dollar is used as the official currency. The firm faces the demand curve shown below. The firm has a constant marginal cost of $2.00 per pack. The fixed cost of the firm is $50 million. To answer the questions below, it is useful to know that the equation of the (inverse) demand curve is P = 8 - 0.04Q, where Q is the quantity demanded (in millions of packs) and P is the price per pack (in $). Also, you should draw in the marginal revenue curve.
 
-Refer to the scenario above.If the quantity sold is 50 million packs,then the firm's total revenue is ________ and the total cost is ________.

Quizplus · Accepted Answer

When the quantity sold is 50 million packs, we can calculate the price as follows:

P = 8 - 0.04Q
P = 8 - 0.04(50)
P = 6

Therefore, the total revenue is:

TR = P x Q
TR = 6 x 50
TR = 300 million

The total cost is given as $50 million in the scenario. Therefore, the correct answer is B: $300 million in total revenue and $150 million in total cost.