Question

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.)

Answer 1

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