MBA7220-01 Exam II, October 25, 2017 (To be turned in on November 8, 2017) B. Fa
ID: 1104239 • Letter: M
Question
MBA7220-01 Exam II, October 25, 2017 (To be turned in on November 8, 2017) B. Farmer Print Name Sign Name 1 (2) 1. Amonopolist has a constant marginal and average cost of $10 and has a demand curve of Qp 1000-10P a) Calculate marginal revenue function: e b) The monopolist's profit maximizing quantity is: c) The monopolist's profit maximizing price is: d) The monopolist's profit maximizing profit is: - (2) 2. The Demand Curve for a monopolist is Qp 500-2P; MC-$50/unit: ATC = $50/unit a) profit maximizing output is b) profit maximizing price is:_ c) profit is: d) Lerner Index for this industry is 3, For a monopolistic competitive firm: Price-S80; MR = $40; ATC-$100; MC-S40; AFC-$10. To maximize profit, the firm should produce a smalleroutput and sell it at a higher price. a) True b) False (05) Page 1 of 5Explanation / Answer
2. a. Monopolist demand: Q = 500 – 2P; MC = $50/unit; ATC = $50/unit
Profit-maximization occurs when MR = MC
2P = 500 – Q
P = 250 – 0.5Q
TR = 250Q – 0.5Q^2
MR = 250 – Q
250 – Q = 50
Q = 200 (Profit-maximizing output
b. P = 250 – 200
P = $50. (Profit-maximizing price).
c. Monopoly Profit :
TR = (250x50) – 0.5(50)^2
TR = $12,500 – 1,250 = $11,250.
TC = 200 x 50 = 10,000
Profit = 11,250 – 10,000
Profit is = $1,250.
Lerner Index is: (P – MC) / P
Lerner Index = (50-50/50
Lerner Index = 0.
3. False.
(MR and MC equal at 40, and the price (80) is below ATC (100). So, the firm cannot produce a smaller output and sell at a higher price.)
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