Question

Consider a single-price monopoly selling golf carts.

The product demand (given in inverse form) is P = 6,000 – 2Q

The firm’s average costs and marginal costs are constant and given by ATC = MC = 1800.

The profit maximizing quantity produced by this firm is ___________ golf carts.

Consider the same golf cart firm. The firm will charge a price of $_______ per golf cart at this profit maximizing output level.

Consider the same golf cart firm. The total economic profit earned by the firm is $_________.

Answer 1

Profit is maximized where marginal revenue is equal to marginal cost

Demand Function

P = 6,000 – 2Q

Marginal revenue function is the same as demand function the only difference is that the coefficient of Q gets doubled.

MR = 6000 - 4Q

Equating both MR and MC

6000 - 4Q = 1800

Q = 1050

To find the profit-maximizing price we will use the demand function

P = 6,000 – 2Q

P = 6,000 – 2(1050)

P = 3900

Total Revenue = Price x Quantity

Total Revenue = 3900 x 1050

Total Revenue = 4095000

Total Cost = ATC x Q

Total Cost = 1800 x 1050

Total Cost = 1890000

Profit = Total Revenue - Total Cost

Profit = 4095000 - 1890000

Profit = 2205000