Answered: Earlier we mentioned the special case…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Monopoly: Work It Out

Earlier we mentioned the special case of a monopoly where MC = 0. Let’s find the firm’s best choice when more goods can be produced at no extra cost. Since so much e‑commerce is close to this model—where the fixed cost of inventing the product and satisfying government regulators is the only cost that matters—the MC = 0 case will be more important in the future than it was in the past. For each demand curve, calculate the profit-maximizing level of output and price as well as the monopolist's profit.

a. ?=200−?P=200−Q, fixed cost = 1,000.

Profit‑maximizing output Q =

Profit‑maximizing price P = $

Monopolist's profit: $

b. ?=4,000−?P=4,000−Q, fixed cost = 900,000 (Driving the point home from part a)

Profit‑maximizing output Q =

Profit‑maximizing price P = $

Monopolist's profit: $

c. ?=120−12?P=120−12Q, fixed cost = 1,000

Profit‑maximizing quantity Q =

Profit‑maximizing price P = $

Monopolist's profit: $

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