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Profit Maximizing Activity Level

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Paradox Dental, Ltd., enjoys a local monopoly in the provision of oral examination services in Tuskegee, Alabama. Total and marginal revenue relations for the standard procedure are:

TR = $250Q - $0.001Q2
MR = dTR/dQ = $250 - $0.002Q
Marginal costs (and average variable costs for the process are stable at $150 per unit.
Fixed costs are zero.

A. As a monopoly, calculate Paradox Dental's output, price, and profits at the profit-maximizing activity level.
B. What price and profit levels would prevail based on the assumption that new entry into the local market results in competitive market pricing?

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Solution Summary

This solution is comprised of a detailed step-by-step explanation of how to calculate output, price and profits at the profit-maximizing level. These concepts are analyzed within the scenario of Paradox Dental, Ltd., which enjoys a monopoly in Tuskegee, Alabama.

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A. Given that,
TR = $250Q-$0.001Q^2
MR = dTR/dQ = $250-$0.002Q
Marginal Cost, MC = $150

As we know that, a monopoly can maximize it ...

Solution provided by:
Jayant Kumar, MBA
Education
  • MBA, Indian Institute of Finance
  • Bsc, Madras University
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