1.) Mustapha maintains a monopoly in the holographic TV market because of its patent but it is about to expire. The market demand and Mustapha’s production cost are given by: P = 100 − 0.5? and ?? = 100 + 0.5Q2 The monopoly profit is.
a. $3,750.00
b. $2,400.00
c. $3,000.00
d. $2,500.00
Answer
Option b) $2400
Reason:
The monopolist’s demand curve
P = 100 - 0.5Q
generates the total revenue equation. ( TR = P*Q )
TR= 100Q - 0.5Q2
Also total cost equation is
TC = 100 + 0.5Q2
Given these equations, the profit-maximizing quantity of output is determined through the following steps:
Determine marginal revenue by taking the derivative of total revenue with respect to quantity.
dTR/ dQ = 100 -Q
Determine marginal cost by taking the derivative of total cost with respect to quantity.
dTC/ dQ = Q
Set marginal revenue equal to marginal cost and solve for q.
100 - Q = Q
Thus, Q = 50
Substituting 50 for Q in the demand equation enables you to determine price.
P = 100 - 0.5*50 = $75
Thus, Monopoly profit = TR -TC
= 100Q - 0.5Q2 - 100 - 0.5Q2
= 100Q - 100 - Q2
= 5000 - 100 - 2500
= $2400
Get Answers For Free
Most questions answered within 1 hours.