Suppose Acme and Mega produce and sell identical products and face zero marginal and average cost. Below is the market demand curve for their product. For a monopolist facing this demand curve, the profit-maximizing quantity is ______ and the profit-maximizing price is ______.
A)50; $2
B)100; $2
C)50; $3
D)100; $1

Question

Suppose Acme and Mega produce and sell identical products and face zero marginal and average cost. Below is the market demand curve for their product.  For a monopolist facing this demand curve, the profit-maximizing quantity is ______ and the profit-maximizing price is ______.
A)50; $2 
B)100; $2 
C)50; $3 
D)100; $1

Quizplus · Accepted Answer

Since Acme and Mega are facing identical demand, they would be a single monopolist in the market. To maximize profit, a monopolist produces where MR = MC. Since marginal cost is zero, the monopolist will produce where MR = 0.5Q = 50 - Q. Solving for Q gives Q = 100. Putting Q = 100 into the demand curve gives $2 as the profit-maximizing price. Therefore, the profit-maximizing quantity is 100 and the profit-maximizing price is $2, so the answer is (B).

Suppose Acme and Mega Produce and Sell Identical Products and Face