B2B Project

Assignment of Microeconomics: Dr.Priyanka Mallick EPGP-04A-068

Monopoly 1. A firm faces the following average revenue (demand) curve: P = 120 - 0.02Q where Q is weekly production and P is price, measured in rupees per unit. The firm’s cost function is given by C = 60Q + 25,000. Assume that the firm maximizes profits. What is the level of production, price, and total profit per week?

Ans1. Level of optimal production is obtained by setting Marginal Revenue equal to Marginal Cost.
If Demand function is Linear then, P=a-bq
Revenue is R (Q)=P(Q)Q and
Marginal Revenue (MR)=a-2bq
Here, a=120 and b=0.02
Therefore, MR=120 – 2(0.02) Q =120-.04Q

Total Cost C =60q+25000 so Marginal Cost (MC)=60

Setting MR = MC
120-.04Q =60
Q= 60/.04
=1500units
Level of Production= 1500units

Substituting in Demand Function, P = 120 - 0.02Q = 120-0.02*1500 = 120-30 =Rs 90 Price= Rs 90 Revenue = Price (P)*Quantity (Q) = 90*1500 = Rs 135,000 For Total cost, substituting in C = 60Q + 25,000 = 60*1500+25000 = Rs 115,000 Total Profit per week= Revenue-Cost =135,000-115,000 = Rs 20,000

Total Profit per week = Rs 20,000

2. A monopolist faces the demand curve P = 11 – Q, where P is measured in rupees per unit and Q in thousands of units. The monopolist has a constant average cost of Rs. 6 per unit. What are the monopolist’s profit-maximizing price and quantity? What is the resulting profit? Calculate the firm’s degree of monopoly power using the Lerner index.

Ans2. Level of optimal production is obtained by setting Marginal Revenue equal to Marginal