In a market with the inverse demand curve P = 10 - Q, Brand X is a monopolist with no fixed costs and with a marginal cost of $2. If marginal cost rises to $4, by how much will the price of Brand X rise?

Question

Quizplus · Accepted Answer

To find the monopoly quantity with MC of $2, we set MC equal to MR.
MR = 10 - 2Q = MC = 2
Solving for Q, we get Q = 4 and P = 6.
Now, with MC of $4, we set MC equal to MR again.
MR = 10 - 2Q = 4
Solving for Q, we get Q = 3 and P = 7.
Therefore, the price of Brand X will rise by $1.

In a Market with the Inverse Demand Curve P =