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fixed costs of the monopolist

2) A monopolist faces the following demand function for its product:

Q = 45 - 5P

The fixed costs of the monopolist are $12 and the monopolist incurs variable costs of $5.00 per unit.

a) What is the profit-maximizing level of price and quantity for this monopolist? What will profits be at this price and output level?
b) If the government imposes a franchise tax on the firm of $10, what will be the profit-maximizing level of price, output, and profits?
c) If the government imposes an excise tax of 50 cents per unit of output sold, what is the impact on the profit-maximizing level of price, outputs and profits?
d) If the government imposes a ceiling of $6 on the price of the firm's product, what output will the firm produce and what will be total profits?

Solution Preview

a)
MC=constant Variable cost=$5.00
For MR, we have TR = P*Q=(45-Q)/5*Q
MR=dTR/dQ=9-0.4Q
Equating the two we get 9-0.4Q=5
Solving we get ...

Solution Summary

The fixed costs of the monopolist are examined.

$2.19