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The inverse demand curve a monopoly faces is p=130 - Q
The inverse demand curve a monopoly faces is p=130 - Q. The firm's cost curve is C(Q) = 20 +5Q. What is the profit-maximizing solution? The profit-maximizing quantity is (Round your answer to two decimal places.) The profit- maximizing price is $ (round your answer to two decimal places.)
Expert Solution
Demand Function
P = 130 - Q
Marginal revenue can be calculated from the demand function by doubling the coefficient of Q
Marginal Revenue Function
MR = 130 - 2Q
Cost Function
TC = 20 + 5Q
Marginal cost can be calculated from the cost function by differentiation
MC = dTC / dQ
MC = 5
Profit is maximized where marginal revenue and marginal cost both are equal.
Equating MR and MC
130 - 2Q = 5
130 - 5 = 2Q
Q = 62.5
Hence the profit-maximizing quantity is 62.5 units
Price can be calculated from the demand function by using this quantity.
P = 130 - Q
P = 130 - (62.5)
P = 67.5
Hence the profit-maximizing price is $67.5
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