You manage a firm in a monopoly market. You know the shape of your demand curve,

Q: You manage a firm in a monopoly market. You know the shape of your demand curve,

1. Option d. 105 Explanation: The monopoly will maximize profit when MR = MC. So, at profit maximizing point: MR = MC Or, 150 - 2Q = 60 or, 2Q = 90 or, Q = 45 Putting the value of Q in the first equation, we get 45 = 150 - P or, P = 150 - 45 = 105.

ID: 1124192 • Letter: Y

Question

You manage a firm in a monopoly market. You know the shape of your demand curve, but you don't know who is willing to pay what, so you have to charge a single price. Given the following information:

Q = 150 - P

MR = 150 - 2Q

MC = 60

FC = 2000

1) calculate the best price you can charge.

a. 45

b. 60

c. The firm should charge each customer their 'reservation price'

d. 105

2) what should the monopolist do in the short run with respect to price if FC increases from $2000 to $3000?

a. There is not enough information to answer.

b. Increase the price to cover increased fixed costs.

c. Nothing--it is already charging the best price.

d. Decrease the price to sell more units

Explanation / Answer

1. Option d. 105

Explanation: The monopoly will maximize profit when MR = MC. So, at profit maximizing point:

MR = MC

Or, 150 - 2Q = 60

or, 2Q = 90

or, Q = 45

Putting the value of Q in the first equation, we get 45 = 150 - P or, P = 150 - 45 = 105.

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You manage a firm in a monopoly market. You know the shape of your demand curve,

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