Suppose a monopoly firm has an annual demand function of Q d = 20,500 - 250P, an

Question

Suppose a monopoly firm has an annual demand function of Qd = 20,500 - 250P, annual variable costs of VC = 16Q + 0.002Q2 and marginal cost of MC = 16 + 0.004Q, where Q is the annual quantity of output. In addition, the firm has an avoidable fixed cost of $25,000 per year. If this firm maximizes its profit, what is the value of its producer surplus?

2.if this firm maximizes its profit, what is the value of the consumer surplus in the market?

3.f this firm maximizes its profit, what is the value of the deadweight loss caused by this monopoly?

Explanation / Answer

solve

MR = MC

after solving the above eq u will get the profot maximizing quantity Q = 5500

putting this value in demand equation and MC eqquation u will get the remianing prices

so by using the above values dead weight loss = 30250

consumer surplus = 121000

producer surplus = 93500

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