Answer to Question #163377 in Microeconomics for SHOUNAK CHATTERJEE

Question

A monopoly publishing house publishes a magazine, earning revenue from selling the

magazine, as well as by publishing advertisements. Thus R = q.p(q) + A(q), where R is

total revenue, q denotes quantity, p(q) is the inverse demand function, and A(q) is the

advertising revenue. Assume that p(q) is decreasing and A(q) is increasing in q. The cost

of production c(q) is also increasing in the quantity sold. Assume all functions are twice

differentiable in q.

(i) Derive the profit-maximising outcome.

(ii) Is the marginal revenue curve necessarily negatively sloped?

(iii) Can the monopolist fix the price of the magazine below the marginal cost of production?

Answer 1

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