Output and profit maximizing price for monopoly

Reference no: EM1311170

A monopolist has the total cost function C=3Q2 (thus marginal cost is MC=6Q) and faces a demand curve P=1,200-Q (thus marginal revenue is MR=1,200-2Q).

a) What is the profit-maximizing price and output? What is the total profit? What is the price elasticity of demand at the profit maximizing output?

b) On a graph, represent the demand curve faced by the monopolist, as well as the MR, MC and AC curves. Clearly show in the graph the price, output and profits from part a).

c) There is a change in tastes by which the demand for the good that the monopolist sells becomes more elastic. The monopolist realizes than even with this new demand function, it will maximize its profits by producing exactly the same output as in part a). However, its market research shows that the price elasticity of demand at that output is -8. Which will be the new price and profits for the monopolist?

(Hint: use the "rule of thumb" for pricing to guide your answer)

d) Why can't the monopolist charge the same price in part c) as in part a)? Explain clearly the economic intuition behind your answer.

Reference no: EM1311170

Questions Cloud

Calculate the level of liquids in the tubes : The ends of two thin glass tubes are stuck in the same pool of water. Although both tubes are thin, one tube has a smaller inside diameter (Tube 1) than the other (Tube 2). Both tubes are made of the same material. Would you expect the level in Tu..

Relationship between elasticity and profit maximizing price : Determine the profit-maximizing prices both firms will charge. In addition, calculate the price-cost margin for each firm and indicate which has more pricing power and why.

Underlying theme of the interview : How would you describe the underlying theme of this interview? How would you convey it to Samuel?

What is the overhead cost per unit : What is the overhead cost per unit under the current system and evaluate the total overhead allocated to each product using the current system?

Output and profit maximizing price for monopoly : What is the profit-maximizing price and output? What is the total profit? What is the price elasticity of demand at the profit maximizing output?

Pros and cons of the technique : Write down the pros and cons of the technique you chose?

Calumet''s phone costs for individual customers : Evaluation of cost of usage per customer using the data given - Calumet's phone costs (rounded) for Individual Customers

Profit maximizing price output and social welfare effects : Using the Lerner index, find the price elasticity of demand for Botox and interpret what this value means to total revenue if the price of Botox were increased one percentage point.

Experience in shares of ellis stock : Marx would maintain that Sally has experienced ________.

User Account

All Pages