A monopolist faces the (inverse) demand for its product: p = 50 - 2Q. The monopolist has a marginal cost of 10/unit and a fixed cost given by F
a. Assume that F is sufficiently small such that the monopolist produces a strictly positive level of output. What is the profit-maximizing price and quantity?
b. Compute the maximum profit for the monopolist in terms of F.
c. For what values of F will the monopolists profit be negative?
a. The monopolist will choose p = MR (or derive from first order condition of profit function).
50 - 4Q = 10
Solving for Q
Q* = 10
The price follows from plugging the optimal output into the demand:
p* = 30
b. The profit comes from plugging the price and quantity into the profit equation:
Pi* = 200 - F
c. Find F* such that Pi* = 0:
F* = 200
For F > 200, profits will be negative.
You might also like to view...
The ability of factors to migrate abroad
A) reduces the severity of unemployment and the fall in the rate of return available to investors. B) increases the severity of unemployment and the fall in the rate of return available to investors. C) reduces the severity of unemployment but increases the fall in the rate of return available to investors. D) cannot change the severity of unemployment and the constant rate of return available to investors. E) reduces the migration of highly-skilled workers.
Explain how tax cuts can increase aggregate supply
Suppose the multiplier has a value that exceeds 1, and there are no crowding out or investment accelerator effects. Which of the following would shift aggregate demand to the right by more than the increase in expenditures?
a. an increase in government expenditures b. an increase in net exports c. an increase in investment spending d. All of the above are correct.
Refer to the information provided in Figure 32.2 below to answer the question(s) that follow.
Figure 32.2Refer to Figure 32.2. According to monetarists, an expansionary fiscal policy in the long run and after all the adjustments have been made
A. increases the price level above P1, but does not change equilibrium output. B. increases equilibrium output above Y1 and decreases the price level below P1. C. does not increase equilibrium output or the price level. D. increases equilibrium output above Y1, but does not change the price level.