Suppose that a monopoly faces the inverse demand function: P = 70 - 2Q and its marginal cost...
Question:
Suppose that a monopoly faces the inverse demand function:
{eq}P = 70 - 2Q {/eq}
and its marginal cost function is:
{eq}MC = 40 - Q {/eq}
Questions:
a. What should be the monopoly's profit-maximizing output?
b. What is the monopoly's price?
Monopoly Prices and Profit
How does a monopoly find what price to charge and output to produce in order to maximize profit? To establish the profit maximizing level of output, the monopoly sets marginal revenue equal to marginal cost and produces the corresponding quantity. Then, it sells that quantity at the price that consumers are willing to pay for it.
Answer and Explanation: 1
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