2. A single firm monopolizes the entire market for Batman masks and can produce atconstant average and marginal costs of 10. Originally, the firm faces a marketdemand curve given by Q = 60-P.a) Calculate the profit-maximizing price-quantity combination for the firm. Whatare the firm's profits? (Answer. Q = 25 units; π = $625)b) Now assume that the market demand curve becomes steeper and is given by:Q = 45-0.5P. What is the firm's profit-maximizing price-quantity combinationnow? What are the firm's profits?c) Instead of the assumptions in part b, assume that the market demand curvebecomes flatter and is given by: Q = 100-2P. What is the firm's profit-maximizing price-quantity combination now? What are the firm's profits?d) In each case, compute the demand elasticity for the profit-maximizing price-quantity combination and the markup. Can you find any relationship betweenthe markup and the elasticity? (Answer. & = -1,4;P₁ - MC = 25)e) Graph the three different situations of part a, part b, and part c using just onegraph.

A monopoly firm produces at MR = MC to maximize profit. Hence, profit-maximizing output occurs at…

Answered: A single firm monopolizes the entire…

A single firm monopolizes the entire market for Batman masks and can produce at constant average and marginal costs of 10. Originally, the firm faces a market demand curve given by Q = 60-P.

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

2. A single firm monopolizes the entire market for Batman masks and can produce at
constant average and marginal costs of 10. Originally, the firm faces a market
demand curve given by Q = 60-P.
a) Calculate the profit-maximizing price-quantity combination for the firm. What
are the firm's profits? (Answer. Q = 25 units; π = $625)
b) Now assume that the market demand curve becomes steeper and is given by:
Q = 45-0.5P. What is the firm's profit-maximizing price-quantity combination
now? What are the firm's profits?
c) Instead of the assumptions in part b, assume that the market demand curve
becomes flatter and is given by: Q = 100-2P. What is the firm's profit-
maximizing price-quantity combination now? What are the firm's profits?
d) In each case, compute the demand elasticity for the profit-maximizing price-
quantity combination and the markup. Can you find any relationship between
the markup and the elasticity? (Answer. & = -1,4;P₁ - MC = 25)
e) Graph the three different situations of part a, part b, and part c using just one
graph.

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