You are the manager of a monopoly that faces a demand curve described by P = 230 − 20Q.Your costs are C = 5 + 30Q.Your firm's maximum profits are:
A) 495.
B) 475.
C) 480.
D) 415.

Question

Quizplus · Accepted Answer

To maximize profits, the firm sets MR = MC. MR = 230 - 40Q and MC = 30. Setting MR = MC, we get 230 - 40Q = 30, which implies Q = 5. Substituting Q = 5 into the demand curve, we get P = 230 - 20(5) = 130. Therefore, the firm's maximum profit is (P - MC) * Q = (130 - 30) * 5 = 495.

You Are the Manager of a Monopoly That Faces a Demand