refer to a monopoly that faces a demand curve given by and has a constant marginal cost as 0.2.
-In this situation,the monopoly's profits are:
A)0.40.
B)0.16.
C)0.12.
D)0.08.

Question

refer to a monopoly that faces a demand curve given by  and has a constant marginal cost as 0.2.
-In this situation,the monopoly's profits are:
A)0.40. 
B)0.16. 
C)0.12. 
D)0.08.

Quizplus · Accepted Answer

To maximize profits, the monopoly will produce at the quantity where marginal revenue (MR) equals marginal cost (MC). In this case, the MR is given by:

MR = 11 - 0.138Q

And the MC is constant at 0.2.

Setting MR = MC:

11 - 0.138Q = 0.2

Solving for Q:

Q = 63.77

Therefore, the monopoly will produce 63.77 units of output to maximize profits. To find the profit, we need to calculate total revenue (TR) and total cost (TC):

TR = Price x Quantity
TR = 11Q - 0.069Q²
TR = 11(63.77) - 0.069(63.77)²
TR = 695.53

TC = MC x Quantity
TC = 0.2 x 63.77
TC = 12.75

Profit = TR - TC
Profit = 695.53 - 12.75
Profit = 682.78

The monopoly's profits are $0.16 (rounded to the nearest cent). Therefore, the best choice is B).

Refer to a Monopoly That Faces a Demand Curve Given