Scenario 15-3
Suppose a monopolist has a demand curve that can be expressed as P=90-Q.The monopolist's marginal revenue curve can be expressed as MR=90-2Q.The monopolist has constant marginal costs and average total costs of $10.
-Refer to Scenario 15-3.The profit-maximizing monopolist will earn profits of
A) $6,400.
B) $3,200.
C) $1,600.
D) $800.

Question

Quizplus · Accepted Answer

To maximize profits, the monopolist should produce where marginal revenue (MR) equals marginal cost (MC). Since average total cost (ATC) is constant at $10, it is also equal to marginal cost (MC).

Setting MR=MC: 
90-2Q = 10 
80 = 2Q 
Q = 40

Substituting Q=40 into the demand equation to find P: 
P = 90 - Q 
P = 90 - 40 
P = 50

Therefore, the monopolist will charge a price of $50 and produce a quantity of 40.

Total revenue will be: 
TR = P x Q 
TR = $50 x 40 
TR = $2,000

Total cost (TC) will be: 
TC = ATC x Q 
TC = $10 x 40 
TC = $400

Profits will be: 
Profit = TR - TC 
Profit = $2,000 - $400 
Profit = $1,600

Therefore, the monopolist will earn profits of $1,600.

Scenario 15-3 Suppose a Monopolist Has a Demand Curve That Can Be