ECON 305
CH6-Monopoly and Monopolistic Competition
20. (Show all formulas, calculations, and answers). Your marketing research department has estimated the demand for your firm's product to be: $Q = 12,500 - 25P$ and the marginal revenue to be: $MR = 500 - 0.08Q$. If the marginal cost and average total cost are constant at $40:
a. How much would you produce?
b. What price would you charge?
c. How much economic profit would your firm earn?
d. Illustrate your answers to parts a through c in a graph.
21. Suppose that the market demand curve for your product is given by: $Q = 100 - 0.2P$. In a graph, plot this demand curve, and label it D. Then plot the corresponding marginal revenue curve and label it MR. (Recall that the marginal revenue curve has the same vertical intercept as the demand curve and has a slope twice that of the demand curve.) Assume that the marginal cost and average total cost equal $20 for all levels of production. Draw the marginal cost curve and the average total cost curve. What is the profit-maximizing price and quantity? How much economic profit will you earn? Show all formulas, calculations, and answers.
22. A monopolist's profit-maximizing price is $12, and its profit-maximizing output is 200 units.
a. If the average total cost of production is $8.00 per unit, what is the firm's economic profit?
b. What happens to economic profit if managers change price and output?
