suppose that a monopolist farm\'s demand curve is given by p=210-4y and it faces

Question

suppose that a monopolist farm's demand curve is given by p=210-4y and it faces a constant marginal cost of $10.answer the following questions:

a) what is the profit maximization output for this monopolist? how much total revenue does it earn at this profit maximization level of the output?

b) Suppose that the marginal cost increases to $20. How does total revenue change?

c) Now consider a perfectly competitive industry with a constant marginal cost of $10 for each rm. Find the optimal level of market output and the corresponding price in this industry.

d) Suppose that the marginal cost of each rm in this perfectly competitive industry increases to $20. How does total industry revenue change?

e). Compare and discuss your answers to parts (b) and (d).

Explanation / Answer

I am writing Y=Q=Quantity

P=210-4Q

P*Q=TR=210Q-4Q2

MR=210-8Q

MC=10

210-8Q=10

200=8Q

Q=25

P=210-4*25

P=110

TR=P*Q=25*110=2750

(b) IF MC=20

20=210-8Q

8Q=190

Q=23.75

P=210-4*23.75

P=115

TR=P*Q=2731.25

(c) P= MC is perfect competition condition for profit maximization.

210-4Q=10

4Q=200

Q=50

P=210-4*50

P=10

d) MC=20

P=MC

210-4Q=20

4Q=190

Q=47.5

P=210-4*47.5

P=20

TR=P*Q=47.5*20=950

TR=950

(e) Since the price charged in monopoly is greater and quantity prodiced is lesser, the total revenue is higher. The aim of monopolist is to maximize profits.

The perfect competitor produces where there is social efficiency. The aim is to produce socially optimal output.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.