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The monopoly's demand is p(y) = 850-2y. The cost of production is c(y) = 50y. From the MR and MC of these, I got the optimal output of y=200 units and P=$450.

The part I was having trouble with was the following:

"Suppose in addition to the costs provided, the ?rm also has a ?xed cost of $130,000. The ?xed cost is not sunk in the long run.

  • How does the presence of the ?xed cost change your answer to the optimal output of this monopolist? Speci?cally, will the ?rm produce output in this market (long run)?
  • Is it socially optimal to produce this good? That is, determine the e?cient level of output. Is it zero (i.e. should the good be produced, and if so, how much?)?"

I know that makes the cost production c(y)=50y+130000, but I don't know what to do with that information. 

Macroeconomics, Economics

  • Category:- Macroeconomics
  • Reference No.:- M92040774
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