Manager of a monopoly inverse demand curve of P = 270 - 20Q and C= 5...
Manager of a monopoly inverse demand curve of P = 270 - 20Q and C= 5 + 30Q Max profits are :
715
755
751
725
Homework Answers
Answer
The correct answer is (a) 715
Profit(Pr) = TR - C
where TR = Total Revenue= PQ = (270 - 20Q)*Q and C = Cost = 5 + 30Q
=> Pr = (270 - 20Q)*Q - (5 + 30Q) -------------------Profit Function
Maximize : Pr = (270 - 20Q)*Q - (5 + 30Q)
First Order condition:
d(Pr)/dQ = 0 => 270 - 40Q - 30 = 0
=> Q = 6
Putting this in Profit function we get:
Profit(Pr) = (270 - 20*6)*6 - (5 + 30*6) = 715
Hence, Max Profits are 715.
Hence, the correct answer is (a) 715
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