P = $5,500 - $0.05*Q MR = $5,500 - $0.10*Q Where P is the product price, its qua
ID: 1234994 • Letter: P
Question
P = $5,500 - $0.05*Q
MR = $5,500 - $0.10*Q
Where P is the product price, its quantity sold is Q and MR isthe marginal revenue of the product. Fixed costsare zero since the research and development expenses have beenfully amortized in previous periods. Average variable costs areconstant at $4,500 per unit.
a. Calculate the profit maximizing price/output combinationand economic profits if MBU enjoys an effective monopoly onQuickerBetter due to patent protection.
Explanation / Answer
The monopolist always equates marginal revenue to marginal cost tofind out the profit-maximizing quantity (lower than what it wouldbe in perfect competition: MR = MC 5500 - 0.10*Q = 4500 Q = 10,000 P = 5500 - 0.05*10000 = $5000
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