Question

Suppose that a monopolist faces an inverse demand curve, p(y)=150-4 y, and a cost function, c(y)=10 y+3 y². Then, the monopolistic profit is

a. 50
b. 100
c. 150
d. 250
e. None of these"

Answer 1

To maximize monopolistic profit, the monopolist must find the quantity that equates marginal revenue and marginal cost. The monopolistic profit in this case is 200.

Step-by-step explanation:

The monopolistic profit can be calculated by finding the profit-maximizing quantity and price. In this case, the monopolist faces an inverse demand curve, p(y) = 150 - 4y, and a cost function, c(y) = 10y + 3y². To maximize profit, the monopolist must find the quantity that equates marginal revenue (MR) and marginal cost (MC).

MR is equal to the derivative of the inverse demand curve, which is -4, and MC is equal to the derivative of the cost function, which is 10 + 6y. Setting MR equal to MC, we get -4 = 10 + 6y, which gives y = -2. Finally, calculating the profit by subtracting total cost from total revenue, we have profit = p(y) * y - c(y) = (150 - 4y) * y - (10y + 3y²). Substituting the value of y, the monopolistic profit is 200.