Suppose a monopolist faces consumer demand given by P = 700-2Q with a constant m

Question

Suppose a monopolist faces consumer demand given by P = 700-2Q with a constant marginal cost of $20 per unit (where marginal cost equals average total cost. assume the firm has no fixed costs). If the monopoly can only charge a single price, then it will earn profits of $ (Enter your response rounded as a whole number.) Correspondingly, consumer surplus is $ However, if the firm were to practice price discrimination such that consumer surplus becomes profit, then, holding output constant at 170, the monopoly would have profits of s

Explanation / Answer

Answer
$57800
$28900
$86700
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The monopoly produces at MR=MC
TR=P*Q=700Q-2Q^2
MR=dTR/dQ=700-4Q
equating to the MC
700-4Q=20
Q=680/4
Q=170
P=700-2*170=360
Profit=TR-TC
The marginal cost is constant and there is no fixed cost so ATC=$20
Profit=(P-ATC)*Q
=(360-20)*170
=57800
The consumer surplus is the area above price and below demand curve
=0.5*(700-360)*170
=28900
the profit after price discrimination=profit at single monopoly +consumer surplus
=57800+28900
=86700

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