Question

1. To maximize profits in a competitive market set price equal to marginal cost. But in a monopoly, you set marginal revenue equal to marginal cost. Based on the given information, answer the following questions.

Total Revenue = 100Q – 10Q²

Marginal Revenue = 100 – 20Q

Total Cost = 20 + 10Q

Marginal Cost = 10

Note:   Competitive Market: To maximize profits set Price = Marginal Cost

            Monopoly Market: To maximize profits set Marginal Revenue = Marginal Cost

1. What price do you charge if you are in a competitive market?
2. What quantity do you produce if you are in a competitive market?
3. What profits do you make in a competitive market?
4. What price do you charge if you are in a monopoly?
5. What quantity do you produce if you are in a monopoly?
6. What profits do you make if you are in a monopoly?
7. Would you rather be in a competitive market or monopoly? Why?

Answer 1

Solution:

a) $7

b) 246

c) $1,235

d) $11

e) $-1,354

f) $1,782

g) Competitive market; Their are zero profits in monopoly market

Working:

Competitive market:

Value of Q = 7

R(Q) = 1,481

C(Q) = 246

Profit =TR-TC

Thus pie(Q) = 1,481

Monopoly market:

Value of Q = 11

R(Q) = 1,354

C(Q) = 1,354

Profit =TR-TC

Thus pie(Q) = 0