Answer to Question #63968 in Microeconomics for Grant

Question

Suppose the (inverse) demand function for a single-price monopoly is P = 280 – 2Q. This means that the marginal revenue function for the monopolist is MR = 280 – 4Q. Assume the marginal cost function is given by MC = 3Q. Find the price that the monopolist will charge.

Answer 1

Condition for monopoly’s profit maximization: MR = MC => 280 – 4Q = 3Q => 7Q = 280 => Q* = 40
P = 280 – 2Q => P* = 200
The price that the monopolist will charge: P* = 200