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Price and profit levels

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A. ABC Technologies, Inc., enjoys an exclusive patent on a process to atomize gasoline with platinum in combustion engines, producing substantial gains in miles per gallon. Total and marginal revenue relations for the process are:

TR = $250Q - $0.001Q2
MR = MTR/MQ = $250 - $0.002Q
Marginal costs for the process are stable at $150 per engine. All other costs have been
fully amortized.

1. As a monopoly, calculate ABC's output, price, and profits at the profit maximizing level.

2. What price and profit levels would prevail following expiration of copyright protection (assume that perfectly competitive pricing would result)?

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Solution Summary

As a monopoly, the solution calculates ABC's output, price, and profits at the profit maximizing level.

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