Share
Explore BrainMass

Monopoly profit

The market demand at the beginning is D1, and its corresponding marginal revenue is MR1. The initial ATC is ATC1, and the original supply is MC1.
Therefore, the monopolist sells _____ units at $ _____ per unit, and his/her total profit is approximately $____________.
After a given time period, due to investment and technological advances, which cost the monopolist an increase in TFC, results in a cost of production decrease to ATC2 and its corresponding supply to MC2. The monopolist, then, in the absence of price regulation by the government, would like to produce _______ units and charge a unit price of $__________.
However, due to quality improvements and effective advertising, the demand increases to D2, while its corresponding marginal revenue is MR2, with ATC2 and MC2 remaining unchanged. The monopolist, therefore, produces and sells approximately ______ units at $_______ per unit. His/her total profit is now approximately $___________.

Attachments

Solution Preview

The market demand at the beginning is D1, and its corresponding marginal revenue is MR1. The initial ATC is ATC1, and the original supply is MC1.
Therefore, the monopolist sells 8 units (quantity at the point whenever MR1 crosses MC1) at $25 per unit (price at a point Q = 8 crosses D1), and his/her total profit is approximately (25 - 12)8 = ...

Solution Summary

Monopolist is able to make positive profit since it can maximize quality produced by equating marginal revenue (MR) and marginal cost (MC) and charge at a price according the market demand. By technological improvement, the monopolist is able to produce better product and improve market demand. Even though, fixed cost initially increased with the improvement in technology but the average cost is maintained at around the same level due to the increased in demand. Consequently, monopolist is able to make bigger profits.

$2.19