Question

Harry Smith owns a metal- producing firm that is an unregulated monopoly. After considerable experimentation and research, he finds that the firm’s marginal cost curve can be approximated by a straight line, MC= 60 +2Q, where MC is marginal cost (in dollars) and Q is output. The demand curve for the product is P =100 - Q, where P is the product price (in dollars) and Q is output.A. If Smith wants to maximize profit, what output should he choose? B. What price should he charge?

Answer 1

1. 10 units

2. 90 dollars

Step-by-step explanation:

1. Total revenue = P x Q

= (100 - Q) x Q

= 100 - Q^2

Marginal revenue = dTR/dQ

=100 - 2Q

MR = MC

100 - 2Q = 60 + 2Q

100 - 60 = 4Q

40 = 4Q

Q = 10 units

2. Putting price of Q = 10 in the price equation

P = 100 - Q

P = 100 - 10

Price = 90