A monopoly has two production plants with cost functions C₁ = 50 + 0.1Q₁² and C₂ = 30 + 0.05Q₂².The demand it faces is Q = 500 − 10P.What is the condition for profit maximization? A) MC₁(Q₁) = MC₂(Q₂) = P(Q₁ + Q₂). B) MC₁(Q₁) = MC₂(Q₂) = MR(Q₁ + Q₂). C) MC₁(Q₁ + Q₂) = MC₂(Q₁ + Q₂) = P (Q₁ + Q₂). D) MC₁(Q₁ + Q₂) = MC₂(Q₁ + Q₂) = MR (Q₁ + Q₂).

Question

Quizplus · Accepted Answer

The condition for profit maximization for a monopoly is to produce at the quantity where marginal revenue (MR) equals marginal cost (MC). Therefore, the correct condition is MC₁(Q₁) = MC₂(Q₂) = MR(Q₁ + Q₂). Options (A) and (C) are incorrect because they include the price (P) in the condition, whereas the profit maximization condition only depends on the quantity produced, the marginal cost, and marginal revenue. Option (D) is incorrect because it uses MR in one condition and P in the other, whereas both conditions should be based on the same variable, which is MR.

A Monopoly Has Two Production Plants with Cost Functions C1

A Monopoly Has Two Production Plants with Cost Functions C₁