Question 2 1 points Save An Scenario: Monopoly with Linear Demand Amonopolist fa

Question

Question 2 1 points Save An Scenario: Monopoly with Linear Demand Amonopolist faces a linear demand of the form P a b-500-20Q Their marginal cost MC curve is estimated by the equation MC= 50 + 5Q Their cost per unit (ATC) at their profit-maximizing output (QM) is $85, while their cost per unit (ATC) at the competitive market (socially efficient) output (Qc) is $100.55. Reference: (Scenario: Monopoly with Linear Demand) (Scenario: Monopoly with Linear Demand) The monopolist will charge a price ofto maximize profit. O A. $272 B.$300 C.$182 0 D. $400 E. $72

Explanation / Answer

2. Ans: $300

Explanation:

P = 500 - 20Q

TR = 500Q - 20Q2

MR = 500 - 40Q

Profit maximization condition is

MR = MC

500 - 40Q = 50 + 5Q

45Q = 450

Q = 450 / 45 = 10

P = 500 - 20(10) = $300

3. Ans: ($29 - $16)

4. Ans: True

Explanation:

TR is maximized, when MR = 0

500 - 40Q = 0

40Q = 500

Q = 500 / 40 = 12.5

P = 500 - 20(12.5) = $250

Thus, maximum TR will be achieved when price is $250.

6. Ans: The prices of both the product changes and the consumer's income (budget) changes.

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