Question

Mulaudzi liquor operates in a competitive industry to produce alcohol at a constant marginal cost of R28 per unit. Immediately when the industry is monopolized, marginal cost rise to R35 per unit because of the R5 per unit must be paid to lobbyists to ensure that only Mulaudzi firm receive liquor license

Qd=1300-15P

And Marginal revenue curve by

MR= 15-Q/10

a) Calculate the monopoly quantity

Answer 1

The monopoly firm will produce at a point where MR=MC for profit maximization

$MR=MC\\15-\frac{Q}{10}=35\\-\frac{Q}{10}=35-15\\-\frac{Q}{10}=20\\-Q=20\times 10\\-Q=200\\Q=-200$