A monopoly produces widgets at a marginal cost of $10 per unit and zero fixed costs.It faces an inverse demand function given by P = 50 − Q.The monopoly price is:
A) $30.
B) $20.
C) $10.
D) $40.

Question

Quizplus · Accepted Answer

To find the monopoly price, we first determine the quantity where marginal revenue (MR) equals marginal cost (MC). The inverse demand function is P = 50 - Q, so the total revenue (TR) is P*Q = (50 - Q)Q. The marginal revenue (MR) is the derivative of TR with respect to Q, which is MR = 50 - 2Q. Setting MR equal to MC (which is $10) gives 50 - 2Q = 10, solving for Q gives Q = 20. Substituting Q = 20 back into the demand function gives P = 50 - 20 = $30.

A Monopoly Produces Widgets at a Marginal Cost of $10