Consider a market served by duopolists. The market’s demand function is given
by D(p) = 3600 − 40p. The marginal cost for firms in this market is constant
at MC = 30, and firms have zero fixed costs. Here, we restrict our attention to
(a) What price and quantity, p
m and Qm, would a monopolist set in
this market? What is its corresponding profit level, Πm?
D(p) = 3600 − 40p, p = 90 - Q/40, MC = AVC = ATC = 30, FC = 0. (a) The price and quantity, pm and Qm, that a monopolist would set in this market are: MR = MC, MR = TR' = (p*Q)' = 90 - Q/20, 90 - Q/20 = 30, Q/20 = 60, Qm = 1,200 units, pm = 90 - 1,200/40 = $60. Its corresponding profit level is Πm = (p - ATC)*Q = (60 - 30)*1,200 = $36,000.