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A monopolist consists of the total cost function C = 3Q2 (therefore marginal cost is MC = 6Q) and faces a demand curve P = 1,200 - Q (therefore marginal revenue is MR =1, 200-2Q).

Q1. Determine the profit-maximizing price and output? Find out the total profit? Also find out the price elasticity of demand at profit maximizing output?

Q2. On a graph, symbolize the demand curve faced by the monopolist, and also the MR, MC and AC curves. Clearly show in the graph the price, output and profits from part (1).

Q3. There is a change in tastes through which the demand for the good which the monopolist sells becomes more elastic. The monopolist realizes than even with this latest demand function, it will maximize its gains by producing exactly the similar output as in part (1). Though, its market research exhibits that the price elasticity of demand at that output is -8. Find out the new price and profits for the monopolist?

Q4. Why can’t the monopolist charge the similar price in part (3) as in part (1)? Describe clearly the economic intuition following your answer.

Managerial Economics, Economics

  • Category:- Managerial Economics
  • Reference No.:- M910016

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