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Managerial Economics: Calculating Maximum Profit and Revenue

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A monopolist's demand function is given by
P = 80-3Q
(with MR = 80-6Q).

Its total cost function is
TC = 20Q + 200
(with MC = 20).

(i) Using algebra determine the profit maximizing output, price and optimal profit for the firm.

(ii) Suppose that instead of maximizing profit, the firm wants to maximize total revenue. Using algebra determine the optimal output, price, profit and revenue for the firm.

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Solution Summary

This solution describes the steps to calculate profit and revenue maximizing output level. It also calculates maximum profit and revenue.

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(i) Using algebra determine the profit maximizing output, price and optimal profit for the firm.

A monopolist sets its output level such that MR=MC to maximize its profits.
On equating MR=MC, we ...

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  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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