1. Consider a monopolist whose cost function is:
c(y) = 2y,
where y is the amount of output produced by the monopolist. The monopolist faces a market demand curve described by equation
QD(p) = 11-p/2
where QD is the quantity demanded when the price of a unit of output is equal to p.
a. What is the profit maximizing condition for the monopolist? Just state the condition.
b. The total revenue for this monopolist is given as 2y(11 − y) and the associated MR for this total revenue is 2(11-2y). From the cost function, the marginal cost is 2. Verify that the marginal cost is 2. Show your work.
c. Given the MR and MC in part b, what is the optimal output level to be produced? Show your work.
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