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E202Solutions7.2

# E202Solutions7.2 - price for that quantity based on the...

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9. Suppose you are a monopolist in the market for a specific video game. Your demand curve is given by P = 80 - Q/2, and your marginal cost curve is MC = Q. Your fixed costs equal \$400. a. Graph the demand and marginal cost curve. b. Derive and graph (above) the marginal revenue curve. Answer : MR = 80 - Q graphed above. c. Calculate and indicate on the graph the equilibrium price and quantity. Answer : Pick quantity to set marginal revenue equal to marginal cost: 80 - Q = Q so Q = 40. Set
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Unformatted text preview: price for that quantity based on the demand curve P = 80 - Q/2 = 80 - 40/2 = 80 - 20 = 60. d. What is your profit? Answer : Total revenue is price times quantity TR = PQ = (60)(40) = 2400. Total cost is fixed cost plus average marginal cost times quantity TC = 400 + (40)(40)/2 = 400 + 800 = 1200. Profit = total revenue - total cost = 2400 - 1200 = 1200. e. What is the level of consumer surplus? Answer : Consumer surplus is (1/2)(80 - 60)(40) = 400....
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