Which of the following expressions is correct?
2 answers:
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Answer:
The correct answer is at 500 units offering at $50, the monopolist will have a profit equal to $11,800.
Step-by-step explanation:
For a monopolist's product, where q is number of units, and both p and c are expressed in dollars per unit,
Demand function is p = 75 - 0.05 × q
Revenue function is R = Demand function × Quantity = 75 × q - 0.05 ×
Cost function is c = 700 + 25 × q
Profit function is given by π = R - c = 75 × q - 0.05 × - 700 - 25 × q
⇒ π = -0.05 × + 50 × q - 700
Now for profit to be maximum ⇒ π = 0
⇒ -0.1 ×q + 50 = 0
⇒ 0.1 × q = 50
⇒ q = 500.
We can easily see that the second order derivative is negative hence telling us that the profit is maximum.
There at 500 units of the product the monopolist will have his maximum output.
Price at which the profit occurs = 75 - 0.05 × 500 = $50
Profit = -0.05 × 500 × 500 + 50 × 500 - 700 = -12500 + 25000 -700 = $11800