Suppose a monopolist faces the following demand curve: P =70-2Q. The long run ma

Question

Suppose a monopolist faces the following demand curve: P =70-2Q. The long run marginal cost of production is constant and equal to $22: and there are no fixed costs. What is the monopolist's profit maximizing level of output? What price will the profit maximizing monopolist produce? How much profit will the monopolist make if she maximizes her profit? What would be the value of consumer surplus if the market were perfectly competitive? What is the value of the deadweight loss when the market is a monopoly?

Explanation / Answer

Find total revenue=PQ
=(70-2Q)Q=70Q-2Q^2
MR=dTR/dQ=70-4Q
Profit maximising output level is MR=MC
70-4Q=22
Q=12......profit Maximising level of output
P=70-2Q
=70-2*12
=70-24
P=46.....Profit max price
TC=22*12=284
TR=46*12=552
Profit=552-284
Profit=268
D)
P=MC
22=70-2Q
Q=48
TR=48*22=1056
TC=1056
Consumer surplus=1/2*(70-22)*48=1152
Deadweight loss=1/2*(46-22)*(48-12)=432

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