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If the inverse demand curve a monopoly faces is p=100-2Q, and MC is constant at 16, then profit maximization: a
If the inverse demand curve a monopoly faces is p=100-2Q, and MC is constant at 16, then profit maximization:
a. is achieved by setting price equal to 21
b. is achieved when 21 units (Q) are produced
c. is achieved only by shutting down in the short run
d. cannot be determined solely from the information provided.
Expert Solution
TR= P*Q = (100 - 2Q)*Q
TR'(Q) =MR = 100 - 4Q---------(i)
MC = 16----------(ii)
Equating (1) and (2), we get:
Q = 41
P = 100 - 2*21 = 58
Hence, profit maximization is achieved by setting price equal to 58
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