Suppose a monopolist faces the following demand curve:
P = 596 - 6Q. Marginal cost of production is constant and equal to $20, and there are no fixed costs.
a) What is the monopolist's profit-maximizing level of output?
MR = (P-MC)*Q
MR = (596 - 6Q - 20)*Q
MR = (576 - 6Q)*Q
MR = 576 - 12Q = 0
Q* = 576/12
Q* = 48
The profit-maximizing level of output would be 48.
b) What price will the profit-maximizing monopolist charge?
P* = 596 - 6Q*
P* = 596 - 6*48
P* = 308
The profit maximizing monopolist price would be $308.
c)How much profit will the monopolist make if she maximizes her profit?
TR* = (P*-MC)*Q*
TR* = (308-20)*48
TR* = 13,824
d)What would be the value of consumer surplus if the market were perfectly competitive?
e) What is the value of the deadweight loss when the market is a monopoly?