Really needing help here as soon as possible on this question! Monopoly Question

Question

Really needing help here as soon as possible on this question!

Monopoly Question:

You are the manager of a business in a monopoly market with the following inverse demand function:

P = 30 - 1/10q

In addition, assume your production technology is described by the total cost function:

C(q) = 500 + 10q

1.) Determine the optimal quantity to produce (qM), the price you should charge for your product (pM), and compute the profit of your business.

2.) Provide an intuitive explanation of market power. What is market power? How do we measure the market power of a business?

3.) Compute the market power of your business.

NOTE: You must show all steps and explain your work

Explanation / Answer

1)   P = 30 –(1/10)Q
TR = 30Q –(1/10)Q^2
MR = 30 -2/10Q
C(q) =500 +10Q
MC = 10
Condition MR=MC
30 – 1/5Q =10
1/5Q =20
Q =100
P =30 –(1/10)*100
= 30 -10
=20
Profit = 20*100 -500 –(10)100
=2,000 -500 -1000
= 500
2)   Market power indicates that firm is price maker not price taker. Market power refers to freedom to decide the price of commodity.
Market power =( P-MC)/P

3)   Market Power = 20 -10/10
=10/10
=1

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

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