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Homework answers / question archive / Suppose the demand of a good is P=10−QP=10−Q
Suppose the demand of a good is P=10−QP=10−Q. A monopolist's total cost is TC=2+2QTC=2+2Q. What is the optimal price and quantity of the monopolist?
We derive the total revenue from the demand function:
We now derive the marginal revenue from the total revenue function:
We derive the marginal cost from the total cost function:
A profit-maximizing monopolist will produce up to the quantity where MR equals MC:
We plug Q=4Q=4 into the demand function to obtain the optimal price:
Hence, the monopolist's optimal price is $6, and the optimal quantity is 4 units.