Question

Suppose a monopolist has a demand curve that can be expressed as P = 90 - Q. The monopolist's marginal revenue curve can be expressed as MR = 90 - 2Q. The monopolist has constant marginal costs and average total costs of $10. Refer to Scenario 15-4. The profit-maximizing monopolist will have a deadweight loss of a. $6, 400. b. $3, 200 c. $1, 600. d. $800.

Answer 1

d. $800

Step-by-step explanation:

MR refers to the margin revenue that is equal to the marginal cost MC to maximize a company's profit (Monopoly condition), therefore:

P = 90 - Q

MR = MC = $10 = 90 - 2Q

solving the equation:

Q = 40

P = 50

The deadweight loss DL can be calculated using the formula:

DL = 0.5*Q*(P-MR) = 0.5*40*(50-10) = 800

Note: the deadweight loss can be calculated graphically, the yellow area in the image down below is known as the deadweight loss area and its value could be extracted from the graph.

Answer 2

The profit-maximizing monopolist will have a deadweight loss of is $1, 600

Explanation:

A monopolist produces at Marginal Rate =Marginal Cost

equating both concepts previously enlisted:

90-2Q=10

2Q=80

Q=40

P=90-40=50

Profit=(P-ATC)*Q

=(50-10)*40

=$1600

the profit is $1600