Why is y=p=100, and not 200 (profit maximizing level) ? 24.6 (0) In the graph be

Question

Why is y=p=100, and not 200 (profit maximizing level) ?

24.6 (0) In the graph below, use black ink to draw the inverse demand curve, P1(y ) 200-y (a) If the monopolist has zero costs, where on this curve will it choose to operate? At y=100, p=100 (b) Now draw another demand curve that passes through the profit- maximizing point and is flatter than the original demand curve. Use a red pen to mark the part of this new demand curve on which the mo- nopolist would choose to operate. (Hint: Remember the idea of revealed preference?)

Explanation / Answer

a) The firm choose it output to operate where MR =MC

TR = 200y - y2

MR = 200 - 2y

MC = 0

200 - 2y = 0

200 = 2y or y = 100

when y = 100,

P = 200 - y or 200 - 100 = 100

so, firm choose to operate at P = $100 and Y = 100 .

because, at Y =P =100 , THe firm maximize his profits and thus they operate at its.

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