Question

The demand function facing the monopolist is given by D(p) 10/p, and the monopolist has positive marginal cost of c. What is the profit-maximizing level of output?

Answer 1

D(p) =10/p

Marginal Cost = c

Let the profit maximizing output be q* at p*

q* = 10/p*

p* = 10/q*

Hence marginal revenue = 10/q*

At Profit Maximizing point Marginal cost = Marginal Revenue

i.e 10/q* = c

or, q* =10/c

Hence Profit Maximization output = 10/c units