If a firm with monopoly pricing power in the market faces a demand curve of P = 2,000 - 2Q and marginal costs of MC = 1,100 + 2Q, then the firm will produce at a price of:
A) $16.
B) $1,400.
C) $1,700.
D) $1,600.

Question

Quizplus · Accepted Answer

To find the profit-maximizing level of output, the monopolist will set marginal revenue equal to marginal cost:

MR = P(1 - 1/Ed)
MR = 2000 - 4Q
MC = 1100 + 2Q

2000 - 4Q = 1100 + 2Q
6Q = 900
Q = 150

Substituting back into the demand function:

P = 2000 - 2Q 
P = 2000 - 2(150) 
P = $1,700

Therefore, the firm will produce at a price of $1,700.

If a Firm with Monopoly Pricing Power in the Market