(Scenario: Home Monopolist) A monopolist faces a demand curve given by P = 60 - 2Q and has total costs given by TC = Q². Its marginal revenue is MR = 60 - 4Q 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 $10. What is the firm's profit-maximizing output level?

Question

Quizplus · Accepted Answer

The firm's profit-maximizing output level is where MR = MC. In this case, MR = 60 - 4Q and MC = 2Q. Setting these two equations equal to each other, we get 60 - 4Q = 2Q, which implies Q = 10. However, since the world price is $10, the firm will only produce if P > MC. Since MC = 2Q, the firm will only produce if Q < 5. Therefore, the firm's profit-maximizing output level is Q = 5.

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