A monopolist faces the following demand curve:

The monopolist has total fixed costs of $60 and has a constant marginal cost of $15.What is the profit-maximizing price?
A) $4
B) $39
C) $36
D) $42

Question

A monopolist faces the following demand curve:

The monopolist has total fixed costs of $60 and has a constant marginal cost of $15.What is the profit-maximizing price?
A) $4 
B) $39 
C) $36 
D) $42

Quizplus · Accepted Answer

To maximize profit, the monopolist should set marginal revenue equal to marginal cost (MR = MC). 
Using the inverse demand function, we can find the corresponding marginal revenue function: 
MR = 920 - 20Q

Setting MR equal to MC ($15) and solving for Q: 
920 - 20Q = 15 
905 = 20Q 
Q = 45.25

To find the price, we can substitute Q back into the demand function: 
P = 80 - 0.5Q 
P = 80 - 0.5(45.25) 
P = $36

Therefore, the profit-maximizing price is $36.

A Monopolist Faces the Following Demand Curve