Question

. You know two things: 1) you are a single-price monopolist; and 2) demand is characterized...

. You know two things: 1) you are a single-price monopolist; and 2) demand is characterized by P(Q)=200-Q/1000. Your pricing manager suggests setting P=$75. True/False/Uncertain: You should fire your pricing manager. Explain why.

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Answer #1

True, you should fire your manager.

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P=$75

P=200-Q/1000

75=200-Q/1000

125=Q/1000

Q=125000

The total revenue is

TR=P*Q=200Q-(Q^2)/1000

MR is the change in total revenue and found by differentiation

MR=dTR/dQ=200-Q/500

MR=200-Q/500

Q=125000

MR=-50

the MR is negative at the price manager adviced.

A monopoly produces at MR=MC where MC cannot be negative.

It means the firm should charge a price where MR is nonnegative, but here the MR is negative which means the price is not maximizing price and need to decrease output up to MR=MC.

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