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Monopolist demand function - One and Only Inc.

One and only Inc is a monopolist. The demand function for its product is estimated to be Q=60-0.4P +6Y+2A

Y=3,000
P=Price per Unit
Y=Per capita disposable personal income (thousands of dollars)
A=hundreds of dollars of advertising expenses

The Firms average variable cost function is AVC=Q²-10Q+60

Y is equal to 3(thousand) and A is equal to 3 (hundred) for the period being analyzed.

a.) If fixed costs are equal to $1,000, derive the firm's total cost function and marginal cost function.
b.) Derive a total revenue function and a marginal revenue function for the firm.
c.) Calculate the profit maximizing level of price and output for One and Only Inc.
d.) What profit and loss will One and Only earn?
e.) If fixed costs were $1,200, how would your answers change for parts (a) through (d)?

Solution Preview

a) AVC = Q^2-10Q+60
Total variable cost (TVC)=AVC*Q=Q^3-10Q^2+60Q
Total Cost (TC) = Total Fixed Cost (TFC) + Total Variable Cost (TVC) = 1000 + Q^3-10Q^2+60Q
Marginal Cost (MC) =d(TR)/dQ = 3Q^2-20Q+60

b) Demand ...

Solution Summary

This solution calculates fixed costs, total revenues, marginal revenues and profit maximizing decisions for a monopolist.

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