Calculate profit-maximizing price and quantity, Macroeconomics

A monopolist faces the following demand function for its product: Q = 45 - 5P The fixed costs of the monopolist are $12 and the variable costs are $5 per unit.
a) What are the profit-maximizing price and quantity? What will be the profits at these price and output levels?

Here Demand function is given by, Q = 45 -5P

ð  P =( 45-Q)/5........... (i)

No w Revenue is given by  ,

 R =  Q * P

ð  R =  Q * ( 45-Q)/5 )..... from  (I )

ð  R = 9Q-Q^2/5.... (II)

Here Marginal Revenue which is derivative of ( II), so,

MR =9-2Q/5 ..... (iii)

 Here marginal cost should be equal to Variable cost which is MC =5

At profit maximization,

MC = MR

ð  9-2Q/5 =5

ð  Q = 10

Hence, 10 is the profit maximizing quantity and the price is given from (i) which is 7. The profit is (7*10-12-5*7) =23

b) If the government imposes an annual tax on the firm of $10, what will be the profit-maximizing price, output, and profits? Who bears the burden of the tax? Why?

Posted Date: 3/7/2013 4:25:01 AM | Location : United States







Related Discussions:- Calculate profit-maximizing price and quantity, Assignment Help, Ask Question on Calculate profit-maximizing price and quantity, Get Answer, Expert's Help, Calculate profit-maximizing price and quantity Discussions

Write discussion on Calculate profit-maximizing price and quantity
Your posts are moderated
Related Questions
Take a position on the following economic issue in the "yes" or "no" selection, support your position with economic theory and critical thinking skills. ISSUE: Should the Feder

how can the central bank influence the size of the multiplier

Are unions “harmful monopolies” or "necessary?" compare and contrast the schools of thought that subscribe and their point of views?

Why might external economies of scale be of interest to developing countries?

During the 1990s, technological advance reduced the cost of computer chips. Explain, with the use of supply and demand diagrams, how the following markets are affected in terms of

The LM curve  The LM curve shows all combinations of R and Y, where the money market is in equilibrium. The LM-curve slopes upwards. Mone

Because of high production-changeover time and costs, a director of manufacturing must convince management that a proposed manufacturing method reduces costs before the new method

If there are economies of scope and if the price for each product equals marginal cost, is it possible for a firm to cover all its costs? If the firm's average cost of production d

Which of these variables are discrete and which are continuous random variables? a) The number of new accounts established by a salesperson in a year. b) The time between customer

Equilibrium in both the goods and in the money market  If both the goods- and the money markets are to be in equilibrium... ...if P increases, Y must fal