Suppose that a monopolist has a patent for widgets and the market demand curve Q(P) is: Q(P) = 60 – 2P, where P is the price in dollars and Q is quantity. A. If MR(Q) > 0, then total revenue increases by selling more units. If MR(Q) < 0, then total revenue increases by selling fewer units. Calculate the Q* such that MR(Q*) = 0: this will be where total revenue is maximized. B. Determine the price P* the monopolist must charge in order to sell Q* units by plugging your answer for Q* into the inverse demand curve P(Q). C. Neatly draw a graph showing the demand curve for widgets and the marginal revenue curve, carefully showing the vertical and horizontal intercepts. Also show Q* and P*.
1. Suppose that a monopolist has a patent for widgets and the market
Q(P) = 60 – 2P,
where P is the
A. If MR(Q) > 0, then total revenue increases by selling more units. If MR(Q) < 0, then total revenue
increases by selling fewer units. Calculate the Q* such that MR(Q*) = 0: this will be where total revenue
is maximized.
B. Determine the price P* the monopolist must charge in order to sell Q* units by plugging your answer for
Q* into the inverse demand curve P(Q).
C. Neatly draw a graph showing the demand curve for widgets and the marginal revenue curve, carefully
showing the vertical and horizontal intercepts. Also show Q* and P*.
PLEASE SHOW ALL WORK
Trending now
This is a popular solution!
Step by step
Solved in 5 steps with 9 images
