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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.

Solution Preview

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.