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Profit maximizing output level

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Please refer attached file for diagram.

The accompanying diagram shows the demand, marginal revenue and marginal cost of a monopolist.

a.Determine the profit maximizing output and price.
b. What output and price would prevail if the product was sold by price taking firms in a perfectly competitive market?
c. Calculate the dead weight loss of this monopoly.

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Solution Summary

Solution depicts the steps to determine profit maximizing output and price level for a monopolist as well as for a perfectly competitive firm. It also calculates the deadweight loss of the monopoly.

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Please refer attached file for diagram.

Solution:

a.Determine the profit maximizing output and price.
A monopolist sets its output level such that MR=MC.
MR and MC curve intersect at Q=3. ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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