A monopolist faces an inveese linear demand function of p(q) = 20 – q and cost function of C(q) = 10 + q?. a. How much maximum profit does the monopolist make? b. If the monopolist were to act like a price taker, what would happen to his or her output decision? V:

A monopolist faces an inveese linear demand function of p(q) = 20 – q and cost function of C(q) = 10 + q?. a. How much maximum profit does the monopolist make? b. If the monopolist were to act like a price taker, what would happen to his or her output decision? V:

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

A monopolist faces an invepse linear demand function of p(q) = 20 -q and cost function
of C(q) = 10 + q².
a. How much maximum profit does the monopolist make?
b. If the monopolist were to act like a price taker, what would happen to his or her
output decision? :

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A monopolist can produce at constant average total and marginal cost of ATC = MC = $20. (Constant ATC = MC implies that there are no fixed costs.) The firm faces a market demand curve given by QD = 40 - P. The monopolist's marginal revenue curve is given by MR = 40 - 2QD. Graph this situation, then calculate the monopolist's profit-maximizing price-quantity and the monopolist's profits. What output level would be produced by a corresponding perfectly competitive industry? What would be the price level? Calculate the "deadweight losses" from monopolization of the industry. Show the DWL on the graph.