Question

A monopoly faces the demand curve P= 11 -0.5Q, where P is measured in dollars per unit and Q in thousands of units. The monopolist has a constant average cost of $6.00 per unit. Draw the average and marginal revenue curves and the average and marginal cost curves. 1.) Using the line drawing tool, draw the average revenue curve and label it 'AR'. $/Q 2.) Using the line drawing tool, draw the marginal revenue curve and label it 'MR'. 3.) Using the line drawing tool, draw the average cost curve and label it 'AC'. 4.) Using the line drawing tool, draw the marginal cost curve and label it 'MC'. Carefully follow the instructions above, and only draw the required objects. What are the monopolist's profit-maximizing price and quantity? U246 10 12 14 16 18 20 22 24 26 Quantity (thousands) The monopoly's profit-maximizing quantity is $ decimal places.) thousand units. (Enter all responses rounded to two The profit-maximizing price is $ . Lieltelttito

Answer 1

AR is the demand curve P = 11 - 0.5Q

MR has same intercept as demand but twice the slope so MR = 11 - Q

AC and MC are fixed at $6

Now profit is maximum when MR = MC. This implies that profit maximizing quantity is 5 thousand units

Profit maximizing price is $8.50 per unit

141 13- 12- 11 10- 9- 8- 7- 6 AC=MC 5- 4- 3- 2- AR MR 1- ó 2 4 6 8 10 12 14 16 18 20 22 24 26 Quantity (thousands)