Question

Suppose mountain spring water can be produced at no cost and that the demand and marginal revenue curves for mountain spring water are given as​ follows: Q = 6000 - 5P MR = 1200 - 0.3QWhat is the​ profit-maximizing price of a​ monopolist? a. ​$800 b. ​$600 c. ​$400 d. ​$900 e. None of the above

Answer 1

Answer:

c. ​$400

Explanation:

The marginal revenue curve can be written as a function of the price as follows:

$Q = 6000 - 5P \\MR = 1200 - 0.3Q\\MR = 1200 - 0.3*(6000 - 5P)\\MR = -600+1.5P$

The value of P which yields a marginal revenue of zero is the profit-maximizing price, since there would be no added revenue from selling an extra unit at that level of output:

$0 = -600+1.5P\\P=\frac{600}{1.5}\\P = \ 400$

The​ profit-maximizing price is $400.