All 500 consumers in a market have identical demand for a product that is descri

Question

All 500 consumers in a market have identical demand for a product that is described by individual demand curves P=40-2q. A monopolist produces the product and has a cost function of TC(Q)=10000+8Q. What is the USE FEE in the two-part tariff the maximizes profits? All 500 consumers in a market have identical demand for a product that is described by individual demand curves P=40-2q. A monopolist produces the product and has a cost function of TC(Q)=10000+8Q. What is the USE FEE in the two-part tariff the maximizes profits?

Explanation / Answer

To maximize profits the monopolist would set marginal revenue equal to marginal cost

Revenue = price X quantity

R = (40-2Q)Q

R = 40Q - 2Q2

Marginal revenue = 40 - 4Q

TC = 10000+8Q

Marginal cost =8

Marginal cost = Marginal cost

40 - 4Q =8

Q = 8 units

Price = 40 - 2Q

Price = 40 - 2 X 8

Price = $ 24.

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