A monopoly produces widgets at a marginal cost of $8 per unit and zero fixed costs. It faces an inverse demand function given by P = 38 - Q. What are the profits of the monopoly in equilibrium?
A) $225
B) $120
C) $345
D) None of the statements is correct.

Question

Quizplus · Accepted Answer

The profit-maximizing quantity is found by setting marginal cost equal to marginal revenue. Marginal revenue is the derivative of total revenue, which is equal to price times quantity. So, MR = P - Q. Setting MR = MC, we get:38 - 2Q = 82Q = 30Q = 15The profit-maximizing price is then found by plugging the profit-maximizing quantity into the inverse demand function:P = 38 - QP = 38 - 15P = 23So, the monopoly's profit is:π = (P - MC)Qπ = (23 - 8)15π = $225

A Monopoly Produces Widgets at a Marginal Cost of $8