Suppose a monopoly faces an inverse demand curve of P = 100 − 2Q and has constant marginal cost of 6Q.If the government is considering legislation that would regulate price to the competitive level,what is the maximum amount the monopoly would spend on (legal)lobbying activities designed to thwart the regulation?
A) $62.50
B) $500
C) $562.50
D) None of the preceding answers is correct.

Question

Quizplus · Accepted Answer

The competitive price is found where P = MC, but since MC is given as 6Q, not a constant value, the premise for finding a competitive level price as stated is flawed. Therefore, without accurate information on how MC equals price, we cannot determine the competitive price or the monopoly's profit at that price, making it impossible to calculate the maximum amount the monopoly would spend on lobbying.

Suppose a Monopoly Faces an Inverse Demand Curve of P