The inverse demand curve a monopoly faces is

p = 100 - Q.

The firm’s cost curve is (so ). What is the profit-maximizing solution? How does your answer change if C(Q) = 100 + 5

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We know MR = 100 − 2Q and MC = 5. Set MC = MR and solve:

5 = 100 – 2Q

Q * = 47.5

p * = 52.5

profit = 2493.75 − 247.50 = $2246.25.

If the cost function changes to C = 100 + 5Q, t

he quantity and price will not change, however the profit will be 2493.75 − 337.50 = $2156.25

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