Answer to Question #285874 in Microeconomics for joe

Question

Thanos has a monopoly in the market for stones. The market demand curve for stones is Q = 120 − 2P. Currently,A new technology is available that would reduce the marginal cost of making stones to $20 per stone for an output level greater than 50 units (but for the first 50 units, the marginal cost is still $30).

1. If Thanos is still the only supplier of the stone, what is his maximal willingness to pay for this technology?
2. Captain Marvel,who also has the ability to produce infinity stones, Her marginal cost of production is $29. Suppose that Thanos and Captain Marvel engage in Bertrand competition. However, the name of Thanos deserves some respects; if they charge the same prices, then all consumers will buy from Thanos. What is the equilibrium market price after Thanos has acquired the new technology?
3. Facing competition from Captain Marvel,what is Thanos’ maximal willingness to pay for the new technology? Does competition strengthen or weaken Thanos’ incentives to acquire the new technology?

Answer 1

maximizing the profit of a monopolist

P>MC

Q = 120 - 2P

Q=50, P=35

Q=60, P=30

Both in the first and in the second case, the price is higher than the marginal costs, and the monopolist maximizes his profit.

At the price of 21, the monopolist will be able to maximize his profit.

incentives to acquire new technology, since marginal costs will decrease and the monopolist will be able to profit even at the price of 21.