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ClassOf1 Monopoly Price

ClassOf1 Monopoly Price

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Calculate level of production, price and total profit given the demand and cost function and also what happens when Government levy tax.
Calculate level of production, price and total profit given the demand and cost function and also what happens when Government levy tax.

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Published by: ClassOf1.com on Sep 10, 2009
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09/10/2009

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Sub: Economics Topic: Micro Economics
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The Homework solutions from ClassOf1 are intended to help the student understand the approach to solving the problem and not for submitting the same inlieu of your academic submissions for grades.
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Question: 
Calculate level of production, price and total profit given the demand and costfunction and also what happens when Government levy tax.
 
Q:
A monopolist faces the following demand curve: P=120-0.02Q, where Q is production,
and P is price measured in cents per unit. The firm’s cost function is given by
 C=60Q+25,000.a) What is the level of production, price and total profits per week.b) If the government decides to levy a tax of 14 cents per unit on the product, what wouldbe the level of production, price, and profit?
 
Solution: 
a)
A monopolist maximizes profits by setting price where MR=MC.TR=P*Q=120Q-0.02Q^2MR=120-0.04Q C=60Q+25000MC=60MR=MC => 120-0.04Q=601.
 
Q=1500 units2.
 
P=120-(0.02*1500)=90 cents3.
 
Profits= TR-TC = PQ-C = (90*1500)-(60*1500)-25000=135000-90000-25000=20000 cents

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