400 ??-?? 025 50 75 100 6) The above figure shows the demand and cost curves fac

Question

400 ??-?? 025 50 75 100 6) The above figure shows the demand and cost curves facing a monopoly. At the profit-maximizing price, the elasticity of demand equals A) zero. B) -3. C) infinity. 7) The above figure shows the demand and cost curves facing a single- price monopoly. Based on the figure above, the profit maximizing firm's profit is: A) 2500 C) zero. B) -2500 D) not determined based on the information provided. 8) The above figure shows the demand and cost curves facing a single-price monopoly. If the firm is profit maximizing, then the consumer surplus is: A) -2500 B) 2500 C) 1250 D) 10,000

Explanation / Answer

6) B) -3

demand curve is

p=400-4q

MR curve will be

p=400-8q

For profit maximization

MR=MC

400-8q=200

q=25

p=400-4*25=300

elasticity of demand = (dq/dp)*p/q = (-1/4)*300/25 = -3

7) A) 2500

profit maximizing profit = TR-TC = pq - q*AC =300*25-25*200 = 2500

8) C) 1250

consumer surplus = 0.5*25*100 = 1250

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