Table 14-5
A monopolist faces the following demand curve:

-Refer to Table 14-5.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

Table 14-5
A monopolist faces the following demand curve:
 
-Refer to Table 14-5.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 determine the profit-maximizing price, we need to find the point where marginal revenue (MR) equals marginal cost (MC).

First, we need to calculate the monopolist's marginal revenue. Since this is a linear demand curve, we can find MR by doubling the slope of the demand curve at any given quantity. In this case, let's use a quantity of 6:
MR = 2(45 - 2*6) = 2(33) = $66

Next, we need to calculate the monopolist's quantity at this price by setting MR equal to MC and solving for quantity:
66 = 15 + (45 - 2Q)
51 = 2Q
Q = 25.5

Since this is not a whole number, we need to round down to the nearest integer to find the profit-maximizing quantity, which is 25.

Finally, we can calculate the profit-maximizing price by plugging this quantity back into the demand curve and subtracting the average total cost (ATC) to get the price that covers both variable costs and fixed costs:
P = 45 - 2Q
P = 45 - 2(25)
P = $36

Thus, the profit-maximizing price is $36.

Table 14-5 A Monopolist Faces the Following Demand Curve