A small monopoly manufacturer of widgets has a constant marginal cost of $2020. The demand for this firm's widgets is Upper Q
equals 105 minus 1 Upper PQ=105−1P. Given the above information, compute the social cost of this firm's monopoly power. The social cost is $nothing. (Round your response to the nearest penny.)
1 answer:
Answer: $903.13
Explanation:
The marginal cost should be $20 and not $2020
Given the following;
Marginal cost = $20
Q = 105 - 1P
Therefore ;
P = 105 - Q
Total revenue (TR) = Price(P) * Quantity(Q)
TR = (105 -Q)Q
Marginal revenue= 105 - 2Q
For optimal Monopoly;
MR = MC
105 - 2Q = 20
2Q = 105 - 20
Q = 85 ÷ 2
Q = 42.5
Therefore,
P = 105 - Q
P = 105 - 42.5 = 62.5
Social cost = area of triangle
Social cost = 0.5 * 42.5 * 42.5 =903.125
Social cost= $903.13
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