1. Consider a monolopy where the inverse demand for its product is given by P =
ID: 1188199 • Letter: 1
Question
1. Consider a monolopy where the inverse demand for its product is given by P = 50-2Q. Total costs for this monopolist are estimnated to be C(Q) = 100 + 2Q + Q^2. At the Profit-maximizing combination of output and price, consumer surplus is?
Answer: $64
2. You are the manager of a firm that sells its product in a competitive market at a price of $48. Your firm's cost function is C = 60+2Q^2. Your firm's maximum profits are
Answer: $228
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Explanation / Answer
1) P=50 -2Q
R = 50Q - 2Q^2
MR = 50 - 4Q
C = 100 +2Q + Q^2
MC = 2+2Q
when MR = MC
50 - 4Q = 2+2q
6Q = 48
Q = 8 units
P = 50 -16 = 34
consumer surplus = (50-34) * 8/ 2 =64
2) in competativemarket firm earns maximum profit when MC =P
C = 60 + 2Q^2
MC = 4Q
4Q = 48
Q = 48/4 = 12
profit = 48 * 12 - (60+ 2* 12^2)
=228
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