Suppose a monopoly firm has an annual demand function of Q^d = 20,000 - 250P,annual variable costs of VC = 16Q + 0.002Q² and marginal cost of MC = 16 + 0.004Q,where Q is the annual quantity of output.In addition,the firm has an avoidable fixed cost of $25,000 per year.If this firm maximizes its profit,what is the value of its producer surplus?

Question

Quizplus · Accepted Answer

Producer surplus is calculated as total revenue minus total variable cost. The monopoly maximizes profit where marginal revenue equals marginal cost. Solving for Q and P, and calculating total revenue and total variable cost, the producer surplus is $156,500.

Suppose a Monopoly Firm Has an Annual Demand Function of Qd

Suppose a Monopoly Firm Has an Annual Demand Function of Q^d