Suppose that a monopolistic seller of flux capacitors faces the inverse demand c

Question

Suppose that a monopolistic seller of flux capacitors faces the inverse demand curve P = 40 0.5Q, and that the monopolist can produce flux capacitors at a constant marginal cost of $5. Suppose that the government imposes a price ceiling of $6. How many units will a profit-maximizing monopolist sell when the price ceiling is in place? a. 34 b . 35 c. 22.5 d   68 Suppose that a monopolistic seller of flux capacitors faces the inverse demand curve P = 40 0.5Q, and that the monopolist can produce flux capacitors at a constant marginal cost of $5. Suppose that the government imposes a price ceiling of $6. How many units will a profit-maximizing monopolist sell when the price ceiling is in place? a. 34 b . 35 c. 22.5 d   68

Explanation / Answer

P = 40 0.5Q

With price cieling of $6, the monopolist cannot charge more than $6 . Let ssee the price in free market

P=40-0.5Q

TR= 40Q-0.5*Q2

MR = 40-Q

Monopolist produces where MR= MC

40-Q = 5

35=Q

P=40-0.5Q

P= 40-0.5x35

P= $22.5

Now with price cieling of $6 quantity that monopolist will produce will be equal to the quantity where the price cuts MR

MR =40-Q

6=40-Q

Q = 34

The answer is (a) 34.

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