Question

In a certain market, the demand is given by q=24−2p. Suppose a monopolist firm operates in that market. What combination of price (p) and quantity (q) maximizes the monopolist's revenue? (

a) p=12,q=12
(b) p=6,q=8
(c) p=9,q=12
(d) p=8,q=8
(e) p=6,q=12

Answer 1

A monopolist firm maximizes its revenue by determining the profit-maximizing quantity of output and the corresponding price.

Step-by-step explanation:

The monopolist firm chooses the combination of price and quantity that maximizes its revenue by following three steps:

1. Step 1: The firm determines the profit-maximizing quantity of output by setting marginal revenue (MR) equal to marginal cost (MC). In this case, MR = 24 - 4q and MC = 4.
2. Step 2: The firm identifies the price to charge for the chosen quantity of output by looking at its demand curve. In this case, the demand is given by q = 24 - 2p. Substituting the profit-maximizing quantity into the demand equation, we get q = 24 - 2p = 24 - 2(6) = 12. Therefore, the price to charge is p = 6.
3. Step 3: The firm calculates its profit by multiplying the profit-maximizing quantity (12) by the price (6). So, the combination that maximizes the monopolist's revenue is p = 6, q = 12.