Question

Consider the MONOPOLY depicted where demand is given by Pb = 97 - 6 Qb and the Monopolist's MC = 34 . What price does the Monopolist charge?

Answer 1

As per the given information in the question

The monopoly’s demand or Average revenue(AR) =Pb=97-6Qb

The marginal cost (MC) of monopoly = 34

Total revenue(TR)= AR x quantity = (97-6Qb)xQb =97Qb-6Qb²

Marginal revenue (MR) = change in the TR/ Change in quantity = d(TR)/dQ =97-12Qb

The monopoly will operate at profit maximising level of output where MC=MR

MC=MR

34=97-12Qb

12Qb =97-34

12Qb =63

Qb=63/12 = 5.25

The profit maximising level of output Qb=5.25 units

The price or AR at this units = 97-6Qb = 97-6(5.25) = 97 -31.5 = 65.5

The profit maximising price = 65.5

The price charged by monopolist is = 65.5