4. You are the manager of a monopoly, and your demand and cost functions are given...

Question

Question

business economics

Answer 1

Answer #1

a) Given that demand function is P = 500 - Q and C = 6000 + 4Q^2

Profit = revenue - cost

= PQ - C

= (500 - Q)Q - 6000 - 4Q^2

= 500Q - 6000 - 5Q^2

Profits are maximized when marginal profits are zero

500 - 10Q = 0

Q = 50 units

P = 500 - 50 = $450

Hence profit maximizing price is $450 per unit and quantity is Q = 50 units

b) Profits are maximized at = 500x50 - 6000 - 5x(50^2) = $6500.

Answer 2

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