Question

can anyone please answer this question pleads was answered before But was wrong and slightly confusing, can you make it clear please

Spor 1 l m When there Whyellent, and why is this an issue? Using the 101 111odel of Baumol, consider the conditions under which the fiem pivuuces an output that is different from the profit-maximizing level. 1007 (b) A monopolist faces an inverse market demand curve. p - 240 - q, and a costru C = 2.9+(all in £'s). 242 (1) Determine the monopolist's profit-maximizing output and price. (11) Find the profit function in terms of q and sketch this in a diagram. What is the Find the monopolist's maximum profit? (111) Suppose the monopolist is a sales-revenue maximizer, but that he is constrained to make at least £3.600 in profit to satisfy the firm's shareholders. Find the monopolist's output and the price in this case, and sketch the outcome on the same diagram developed at (ii). (11) If the shareholders can fully observe the manager's actions. what minimum profit constraint will he set? [40% mark]

Answer 1

i) profit is Maximizing at MR=MC,

MR=240-2q,

MC=4q

240-2q=4q

240=6q

Q=40

P=240-40=200

ii)profit function=TR - TC=240q-q2 - 2q2=-3q2+240q

•86

iii)-3q2+240q=3600

-3q2+240q-3600=0

-q2+80q-1200=0

-q2+60q+20q-1200=0

-q(q-60)+20(q-60)=0

(q-60)(20-q)=0

q-60=0. 20-q=0

q=60. q=20

60>40>20,

So monopolist would produce output equal to 60 ,

P=240-60=180

Misool 400 60

iv) the shareholders will be benefited as firm profit Increases ,so he will set minimum profit constraint equal to profit at profit Maximizing output and that is,

Profit =40*200-2*40*40=8,000-3200=4800