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How a Microchip Monopolist Maximizes Its Profits

Demand for microprocessors is given by P=35-5Q, where Q is the quantity of microchips (in millions). The typical firm`s total cost of producing chips is Ci=5qi, where qi is the output of firm i.

a. Suppose that one company acquires all the suppliers in the industry and there by creates a monopoly. What are the monopolist`s profit maximizing price and total output?

b. Compute the monopolist`s profit and the total consumer surplus of purchasers.

Please clarify this question.

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Solution Preview

a)
Because the monopoly is the only seller, its Demand curve is the same as the market Demand curve: P-35-5Q.
The monopoly's Total Cost (TC) function is the same as that of the suppliers it acquired: C=5Q.

The monopoly maximizes its ...

Solution Summary

This question supposes that a single microchip company acquires all of its competitors and becomes a monopoly. The solution shows how the microchip monopolist controls its output to maximize its profits, and calculates the size of the firm's profit and the industry's total consumer surplus.

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