Posted by Pete on Sunday, November 26, 2006 at 6:26pm.
TFC = $1,000
MC = $1 (and constant)
2.Assume that all households have the same demand schedule which is given by the following relationship: P = 10 – 2Q. If there are 400 households in the market, state what the market demand schedule and marginal revenue schedule look like facing the monopolist.
3.Using the information in the item above, find the monopolist’s profit-maximizing output and price
4.Suppose the monopolist is to behave as though it is in a perfectly competitive market. What price would the monopolist charge and how many units of output work it produce? Does the monopolist earn a profit or loss and how much is it?
2) MR = a + 2bQ.
3) Set MR = MC or 10 - 2Q = 1. Solve for Q. This is the profit-maximizing quantity. Sub the answer you get for Q into the demand function to determine the profit-maximizing price.
4) In a perfectly competitive firm, MR = P. Follow steps in #3, but use 10 - 2Q = 1 for MR = MC. Last, use the cost function C = 1000 + 1Q to determine profit or loss.
2) Market demand function is:
P=10 - (2/400)Q = 10-.005Q
3) You could solve 3 in two ways; directly by determining the Marginal Revenue from the Market demand in 2) above, or as Dwane does by maximizing over a single household then multiplying by 400.
BTW, Dwane's MR in #3 is not correct. MR=10-4
4) Dwane is correct
It sure is incorrect...wow! The bad thing is that I wrote the correct formula directly above! It always good to have someone double-check your work!
3) MR= 10-4Q=1
Is this what you mean?
OR should you times the answers you get for Q and P by 400?
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