Question

If an unregulated electric company is a monopolist and faces demand of Q = 50 - 10P. It has a constant marginal cost of 1 and must pay an environmental fee to the government of 0.2 per unit of output.

In this situation, the profit-maximizing level of output is:

a)5 b)10 c)20 d)50

Answer 1

correct option is profit maximizing level is c)20

Step-by-step explanation:

given data

faces demand Q = 50 - 10P

marginal cost = $1

environmental fee = $0.2 per unit

solution

we know Q = 50 -10P

so P = 5 - 0.1Q

total Marginal Cost will be environmental fee + marginal cost

here TR Total Revenue that is = P × Q

TR = 5Q - 0.1Q²

Marginal Revenue (MR) is =
`(dTR)/(dQ)`

MR =
`(50-2Q)/(10)`

and

total marginal cost = $0.2 + $1 = $1.2

so

total marginal cost = marginal cost

$1.2 =
`(50-2Q)/(10)`

Q = 19 = 20

so correct option is profit maximizing level is c)20