Question

The demand is given by P = 20 – 0.1Q, where P is the price and Q is the quantity demanded. The
monopolist’s total cost is C = 120 + 2Q + 0.05Q
. Find
a. profit-maximizing price and quantity. (2)
b. deadweight loss in the monopoly profit-maximizing equilibrium. (2)

Answer 1

Solution:

a)

$$MC=2+0.1Q$$

$$MC=p$$

$$2+0.1Q=20-0.1Q$$

$$Q=90$$

$$p=11$$

b)

$$20-0.1Q=0$$

$$Q=200$$

$$0.5 \times (200-90) \times 11=650$$