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Calculating economic profits in the given cases

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During recent years, MicroChips corp has enjoyed substantial economic profits derived from patents covering a wide rang of inventions and innovations for microprocessors used in high-performance desktop computers. A recent introduction, the Penultimate, has proven especially profitable. Market demand and marginal revenue relations for the product are as follows:

P=$5,500-$0.005Q
MR= dTR/dQ=$5,500-$0.01Q

Now the AVC are constant at $4,500 per unit.

Calculate the economic profit in case of monopoly and perfect competition.

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Solution Preview

Case 1 : Monopoly
A monopolist sets output level such that MR=MC to maximize its profit.
In this case MC=AVC=4500

Put MR=MC
5500-0.01Q=4500
0.01Q=1000
Q=1000/.01 =100,000 ...

Solution Summary

Solution describes the steps to calculate economic profits in case of monopoly and perfect competition.

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