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Calculating the optimal price in the given case

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The manager of a local monopoly estimates that the elasticity of demand for its product is constant and equal to -2. The firm's marginal cost is constant at $15 per unit.

a. Express the firm's marginal revenue as a function of its price.

MR = x P

b. Determine the profit-maximizing price.

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Solution Summary

Solution determines the Marginal Revenue function and profit maximizing price in the given case.

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Calculating optimal output, price and consumer expenditure

Suppose a perfectly competitive industry cab produce roman candles at a constant marginal cost of $10 per unit. Once the industry is monopolized, marginal costs rise to $12 per candle because $2 per candle must be paid to lobbyists to ensure that only this firm receives a roman candle license. Suppose the market demand for roman candles is given by Qd = 1,000 - 50P and marginal revenue MR = 20 - Q/25.

a) Calculate the perfectly competitive and monopoly price and output.
b) What is the total consumer expenditures on this product under monopoly and under perfect competition?

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