Suppose a monopolist faces the demand curve shown below. If the monopolist's marginal cost is constant and equal to $30, its profit-maximizing level of output is:

Question

Suppose a monopolist faces the demand curve shown below.  If the monopolist's marginal cost is constant and equal to $30, its profit-maximizing level of output is:

Quizplus · Accepted Answer

To maximize profits, a monopolist produces at the level of output where marginal revenue (MR) equals marginal cost (MC). From the demand curve, we can see that at a price of $70, the monopolist can sell 40 units of the good.

To find the corresponding MR, we can differentiate the demand function with respect to quantity:
MR = $70 - 0.4Q

Setting MR equal to MC, we have:
$70 - 0.4Q = $30

Solving for Q, we get:
Q = 20

Therefore, the monopolist's profit-maximizing level of output is 20 units.

Suppose a Monopolist Faces the Demand Curve Shown Below