Question

5. A monopolist faces a linear demand function. Show that if it maximizes sales revenue, it sets an output exactly half that it would produce if it "sold" its output at a zero price.

Answer 1

- figure is showing the D-D demand Chive of Monopolist P and MR is Marginal Revenue of Monopolist. Both are downward Quantity sloping. MR of a downward sloping linear demand Curve is always at half distance from vertical axis. OR Cuts the x-axis at half point, OA - AB A B MR - Monopolist will earn mas profit or in equilibrium When MR = MC Here to cost are zero so MC also zero

In this case to ma he will maximise he his sales where MR is zero and at this point he is in equilibrium. Mc = MR = 0 And this point (A is exactly half of € O-B. If he sales maximised negative left to a then sales are not and to the right his MRTS negative. - So to maximise will sale where or total elemand sales revenue MR=0 and Monopolist It is half at price zero.