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Question: a monopoly has the following demand curve q 800...

Question details

A monopoly has the following demand curve:       Q = 800 – 25*P

The associated marginal revenue curve is:            MR = 32 - .08*Q

a) Graph the demand and marginal revenue curves.

A) Please see attached sheet.

b) Suppose that the firm has a constant marginal cost of $15 per unit. Draw the MC line on your graph. What is the profit maximizing level of output? What is the profit-maximizing price, as found on the demand curve at the chosen level of output? The textbook has some graphs that might be useful here.

b) Q= 800-25*P                              

      

c) If MC is constant at $15, then we know that AVC = $15 and VC = $15*Q. Suppose the firm has a fixed cost of $1,000 so that TC = FC + VC = $1,000 + $15*Q.

What is the firm's profit (P*Q – TC) at the output level you selected in b)?

d) Now find revenue, total cost, and profit for the firm if it chooses an output level 10 units greater than what you used in c), and an output level 10 units lower than what you used in c). Remember, when you change Q you need to use the demand curve to find the new P.

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