Question

24.If the inverse demand curve a monopoly faces is p = 100 - 2Q, and MC is constant at 16, then profit maximization is achieved when the monopoly sets price equal to A) 16. B) 21. C) 25. D) 58. 25. If the inverse demand curve a monopoly faces is p = 100 - 2Q, and MC is constant at 16, then maximum profit A) equals $336. B) equals $882. C) equals $1,218. D) cannot be determined solely from the information provided.

Answer 1

24. A profit maximizing Monopoly produces at the point where marginal revenue is equal to marginal cost and sets its profit maximizing price at the point where profit maximizing quantity lies on the demand curve.

Demand: P = 100 - 2Q

Multiplying both sides by Q we get,

PQ = TR = 100Q - 2Q²

MR = d(TR)/dQ = 100 - 4Q

Setting MR = MC we get, 100 - 4Q = 16

Or, 4Q = 84

Or, Q = 21

From the demand equation we get when Q = 21, P = 100 - (2*21) = $58

Answer: option D

25. To calculate profit we need to calculate the total cost first. But here we don't have any TC function. So, we can't determine the profit.

Answer: option D