Question

This is due Thursday. We are studying monopolies, and the question is;

Firm X is a monoply firm. MR and MC for Firm X are as follow: MR=5,110-10Q, MC=10+10Q, where Q is output.

a) Calculate Firm X's profit-maximizing output.
I think this is Q=225

b) If Firm X's price is $60 per unit and average total cost is $10, calculate Firm X's profit.
I think this is $12,750

c) Explain why Firm X will not produce a socially desirable level of output.

Not sure if this is correct. I have: A profit maximizing monopoly with a straight line demand will never produce where demand is inelastic because MR would be negative and could not egual MC.

Please let me know if these answers are correct.

Thanks!


a) I get Q=255. (I think you did also, you just wrote down 225).

b) 255 * (60-10) = 12750. You are correct

c) While your statement is true, it doesnt answer the question.
Monopolists maximize profits by restricting supply. The social loss is generated because the demand at Q exceeds the marginal cost at Q. That is, at Q, somebody is willing to pay for an additional unit that is more than the cost of producing that additional unit.

(The total social loss (aka the social dead weight loss) is measured by the little triange created to the right of Q and under the demand curve and above the supply (marginal cost) curve.)




Thanks so much for your input on c. I didn't think I was answering the question correctly.
Yes, I copied the answer to a. wrong.
Thanks again, you are a BIG help. One more week of this class and it will be over :-)