Question Completion Status: Scenario: Tobac Co. is a monopolist in the cigarette

Question

Question Completion Status: Scenario: Tobac Co. is a monopolist in the cigarette market in Nicotiana Republic, where the U.S. dollar is used as the official currency. The firm faces the demand curve shown below The firm has a constant marginal cost of $2.00 per pack. The fixed cost of the firm is $50 million. To answer the questions below, it is useful to know that the equation of the (inverse) demand curve = 8 0.0 4Q, where Q is the quantity demanded (in millions of packs and P is te price per pack (in S Also, you should draw in the marginal revenue curve. Price (S per pack) 10 8 6 MC 50 100 150 200 Quantity (millions of packs) Refer to the scenario above. The firm's profit is maximized when the quantity sold is_ packs 50 million O 125 million O75 million 100 million

Explanation / Answer

P=8-0.04Q

TR=8-0.04Q2

MR=dTR/dQ=8-0.08Q

And MC=2

Thus profit is maximised when MR=MC

8-0.08Q=2

Q=6/0.08=75 million

Ans is C

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