Scribd
Upload
17 views2 pages

Miyuru Abeykoon Jayasundara Mudiyanselage - 640610: P Q 40 Q 125+4 Q R C (Q) 40 Q 125 4 Q

This document discusses profit maximization for three market structures: 1) a price taker firm facing a market price of $40, 2) a monopolist with inverse demand of P=100-Q, and 3) a monopolistically competitive firm also with inverse demand of P=100-Q. For each case, the profit maximizing output and price are derived from the revenue, cost, and profit functions. The maximum profits are also reported.

Uploaded by

Miyuru Jayasundara
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
17 views2 pages

Miyuru Abeykoon Jayasundara Mudiyanselage - 640610: P Q 40 Q 125+4 Q R C (Q) 40 Q 125 4 Q

This document discusses profit maximization for three market structures: 1) a price taker firm facing a market price of $40, 2) a monopolist with inverse demand of P=100-Q, and 3) a monopolistically competitive firm also with inverse demand of P=100-Q. For each case, the profit maximizing output and price are derived from the revenue, cost, and profit functions. The maximum profits are also reported.

Uploaded by

Miyuru Jayasundara
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 2

Miyuru Abeykoon Jayasundara Mudiyanselage - 640610

Question 03

Cost function is given as C(Q) = 125 + 4Q2


Determine the profit-maximizing output and price, profit and discuss economic
implications, if
[1] You are a price taker and other firms charge $40 per unit;
[2] You are a monopolist and the inverse demand for your product is P=100 - Q.
[3] You are a monopolistically competitive firm and the inverse demand for your brand
is P = 100 - Q

Make sure to show your work.

Answer

[1]. Revenue Function R ( Q )=P∗Q=40 Q


2
Cost FunctionC ( Q )=125+ 4 Q
Profit Function π ( Q ) =R (Q )−C (Q)
2
¿ 40 Q−125−4 Q 1
dπ
Profit Maximizing Output = =40−8 Q
dQ
Therefore Profit Maximizing Output =Q=5
Maximum Profit=40∗5−125−4∗5^2
¿ $-25

This means that the firm is incurring losses the current market conditions are not favourable for the
firm at the given production level and market price. Not viable in long run. As suggestions; restructure
costs and take steps to improve efficiency of the overall business.

[2] .
2
Revenue Function R ( Q )=P∗Q=Q∗( 100−Q )=100 Q−Q
2
Cost FunctionC ( Q )=125+ 4 Q
Profit Function π ( Q ) =R (Q )−C (Q)
2 2
¿ 100 Q−Q −125−4 Q
dπ
Profit Maximizing Output= =100−10 Q ----------------1
dQ
Therefore Profit Maximizing Output =Q=10
Substituting in 1, Optimal Price = $90

Maximum Profit=90∗10−(125+ 400)


¿ $375

P=$90 means a higher market power since the it is greater than marginal cost. As a monopolist it has
the ability to set prices higher than in a competitive market, which result in higher profits.

[3] . All the calculations same as above.


2
Revenue Function R ( Q )=P∗Q=Q∗( 100−Q )=100 Q−Q
2
Cost FunctionC ( Q )=125+ 4 Q
Profit Function π ( Q ) =R (Q )−C (Q)
2 2
¿ 100 Q−Q −125−4 Q
dπ
Profit Maximizing Output= =100−10 Q ----------------1
dQ
Therefore Profit Maximizing Output =Q=10
Substituting in 1, Optimal Price = $90

Maximum Profit=90∗10−(125+ 400)


¿ $375

You might also like