Find the profit maximizing output and price

Reference no: EM131072258

In this question you will see why we never consider a supply curve for a monopolist - in the way that is done in perfect competition. So suppose the monopolist faces a demand curve P = 72-Q and a MR curve MR = 72-2Q. The Marginal cost is MC =

(a) Find the profit maximizing output and price.

(b) Now suppose that the demand curve shifts to become P = 60-(1/3)Q and thus MR = 60-(2/3)Q. The MC remains the same. Establish that the profit maximizing price is the same for this demand curve as the one in part (a). You have now shown that there is not a unique relationship between cost and demand for the monopolist because the same price in this example is consistent with profit maximization with two different demand curves.

Reference no: EM131072258

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