Acme is a monopolist for a good with inverse demand P = 4000 – 6Q, where P is the price in dollars and Q is the amount sold. Acme's variable costs are TVC(Q) = 4Q². With these functions, the marginal revenue is MR(Q) = 4000 – 120 and marginal cost is MC(Q) = 8Q. a) If Acme has no fixed costs, what is its profit maximizing price? b) If Acme has non-sunk fixed costs of $700,000, is it worth operating or should they shut down?
Acme is a monopolist for a good with inverse demand P = 4000 – 6Q, where P is the price in dollars and Q is the amount sold. Acme's variable costs are TVC(Q) = 4Q². With these functions, the marginal revenue is MR(Q) = 4000 – 120 and marginal cost is MC(Q) = 8Q. a) If Acme has no fixed costs, what is its profit maximizing price? b) If Acme has non-sunk fixed costs of $700,000, is it worth operating or should they shut down?
Chapter8: Monopoly
Section: Chapter Questions
Problem 5SQ
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Transcribed Image Text:Acme is a monopolist for a good with inverse demand P = 4000 – 6Q, where P is the price in
dollars and Q is the amount sold. Acme's variable costs are TVC(Q) = 4Q². With these
functions, the marginal revenue is MR(Q) = 4000 – 12Q and marginal cost is MC(Q) = 8Q.
a) If Acme has no fixed costs, what is its profit maximizing price?
b) If Acme has non-sunk fixed costs of $700,000, is it worth operating or should they shut
down?
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