If the marginal costs are constant and zero for a single price monopolist facing the demand curve P = 10 - Q, what will profits be if fixed costs are 12?
A)10
B)12
C)13
D)38

Question

If the marginal costs are constant and zero for a single price monopolist facing the demand curve P = 10 - Q, what will profits be if fixed costs are 12? 
A)10 
B)12 
C)13 
D)38

Quizplus · Accepted Answer

For a single price monopolist, profit is maximized when marginal revenue equals marginal cost. In this case, marginal cost is zero, so the monopolist should always produce at a quantity where marginal revenue equals zero.

To find this quantity, we first rewrite the demand equation as Q = 10 - P. Then, we can set marginal revenue equal to the derivative of this equation: MR = 10 - 2Q.

Setting MR = 0 and solving for Q, we get Q = 5.

To find the price that the monopolist should charge, we can plug Q = 5 into the demand equation: P = 10 - 5 = 5.

So the monopolist should charge a price of 5 and produce a quantity of 5.

Total revenue is then TR = PQ = 5*5 = 25.

Total cost is fixed cost plus any variable cost, but we are told that marginal cost is zero. So total cost is just the fixed cost, which is 12.

Thus, profit is TR - TC = 25 - 12 = 13.

If the Marginal Costs Are Constant and Zero for a Single