(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 its profit-maximizing price?

Question

Quizplus · Accepted Answer

Since the monopolist is facing a world price of $12, it cannot charge a price higher than that or it will not be able to sell any units. Therefore, the monopolist must set its price at or below $12.

To find the profit-maximizing price, we need to equate marginal revenue (MR) and marginal cost (MC) as the monopolist always produces in the portion of its marginal cost curve that is upward sloping.

MR = MC
20 - 2Q = 2Q

Solving for Q, we get:

Q = 5

Substituting Q = 5 into the demand curve, we get:

P = 20 - Q = $15

Therefore, the profit-maximizing price is $15, and the best choice is option B. However, this price is higher than the world price, so the monopolist will not be able to sell any units if it charges $15. Thus, the actual price charged by the monopolist will be $12, which is the world price.

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