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16 September, 12:12

Harry Smith owns a metal - producing firm that is an unregulated monopoly. After considerable experimentation and research, he finds that the firm's marginal cost curve can be approximated by a straight line, MC = 60 + 2Q, where MC is marginal cost (in dollars) and Q is output. The demand curve for the product is P = 100 - Q, where P is the product price (in dollars) and Q is output. A. If Smith wants to maximize profit, what output should he choose? B. What price should he charge?

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  1. 16 September, 12:41
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    1. 10 units

    2. 90 dollars

    Explanation:

    1. Total revenue = P x Q

    = (100 - Q) x Q

    = 100 - Q^2

    Marginal revenue = dTR/dQ

    =100 - 2Q

    MR = MC

    100 - 2Q = 60 + 2Q

    100 - 60 = 4Q

    40 = 4Q

    Q = 10 units

    2. Putting price of Q = 10 in the price equation

    P = 100 - Q

    P = 100 - 10

    Price = 90
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