Question

11.       A monopolist demand is D = P = $10 - $.05Qm; AC = MC = $2.  The profit-maximizing price (P) and output (Q) are:

A         P = $6, Q = 40.

B.        P = $8, Q = 60.

C         P = $6, Q = 80.

D         P = $4, Q = 100.

E.         None of the above.

12.       A competitive firm’s production function is

            Q = 5 + 20L - .5L² + 40K – K²,

and its demand function is

            P_Q = MR_Q = d = $6.

The prices of L and K are P_L = $6 and P_K = $12.  Use Excel to find the profit-maximizing and cost minimizing amounts of L and K to employ.

A.        L= 10; K =15.

B.        L= 12; K =16

C.        L= 13; K =18

D.        L= 16; K =14

E.         L= 19; K =19

Answer 1

Answer 11:

Given:

P = 10 - 0.05Q

AC = MC = $2

Calculate TR and MR

TR= P*Q

TR= [10 - 0.05Q] * Q

TR =10Q - 0.05Q2

MR =10-0.1Q

For-profit maximization Equate MR=MC

10-0.1Q = 2

8 = 0.1Q

Q= 80 units

This implies

P = 10 - 0.05Q

P = 10 - (0.05 * 80)

P = 10 - 4

P = 6

Therefore, the profit-maximizing price, P = $6 and the profit-maximizing quantity, Q = 80 units.

Correct answer (C) P = $6, Q = 80.

"As per the honor code, we answer only 1st question"

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