Explore BrainMass
Share

# Monopoly

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

The local widget monopolist is retiring. He owns the only machine that produces widgets. He offers to sell the widget machine to you for \$52,500. After you purchase the machine you can produce as many widgets as you want at no additional cost. You know that the long run demand for widgets is as follows:

P = 600 - 2Q where P is the price of widgets and Q is the amount of widgets produced.

Question should you buy the widget machine? Why?

Is this correct:

I set up the following table: (I'm sure there is some formula you can use)

P Q TR MR AR
600 0
598 1 598 598 598
596 2 1192 594 596
.......
300 150 45000 2 300
298 151 44998 -2 298

You should not buy the widget machine because you can only produce 150 at \$300 for a total of \$45,000. By producing 151 widgets total revenue and marginal revenue begin to decrease. You will have a loss of \$7,500 (\$52,500 - \$45,000)