Question

Assume a monopoly is producing two outputs, x1 and x2, and has the following linear demand functions: x1 = 10 - P1 and x2 = 8 - P2. What is the equilibrium condition?

a. P1 = 10, P2 = 8
b. P1 = 8, P2 = 10
c. P1 = P2 = 0
d. P1 = P2 = 5

Answer 1

The equilibrium condition for a monopoly producing two outputs with linear demand functions is given by the equation P1 - P2 = 2, resulting in P1 = P2 = 5.

Step-by-step explanation:

The equilibrium condition for a monopoly producing two outputs, x1 and x2, with linear demand functions x1 = 10 - P1 and x2 = 8 - P2 can be found by setting the demand equal to the supply. So, we can equate the two demand functions:

10 - P1 = 8 - P2

By rearranging the equation, we get:

P1 - P2 = 2

The equilibrium condition is given by the equation P1 - P2 = 2, so the correct answer is d. P1 = P2 = 5.