(Scenario: A Monopolist) A monopolist faces a demand curve given by P = 20 - Q and has total costs given by TC = Q². By using a bit of calculus, you should be able to determine that the firm's marginal revenue is MR = 20 - 2Q and its marginal cost is MC = 2Q. Now suppose that the country in which this monopolist is located decides to engage in international trade. The world price of the product produced by the monopolist is $12. What is the monopolist's profit-maximizing output level?

Question

Quizplus · Accepted Answer

The profit-maximizing output level for a monopolist is determined where MR = MC. Given MR = 20 - 2Q and MC = 2Q, setting MR = MC gives 20 - 2Q = 2Q, leading to 4Q = 20, and thus Q = 5. However, with the introduction of international trade at a world price of $12, the monopolist will adjust output to where price equals marginal cost (P = MC) because it cannot influence the market price. Setting P = $12 to MC = 2Q gives 12 = 2Q, leading to Q = 6. This adjustment accounts for the world market conditions, making 6 the profit-maximizing output level under international trade.

(Scenario: a Monopolist) a Monopolist Faces a Demand Curve Given