CA Foundation · Business Economics · Price Determination in Different Markets
A monopolist faces the demand curve P = 100 - 2Q and has a constant marginal cost of Rs 20 per unit. What price will the profit-maximising monopolist charge?
The monopolist charges Rs 60. Marginal revenue is 100 - 4Q, and equating it with marginal cost of Rs 20 gives output of 20 units. Substituting this output into the demand curve yields a price of Rs 60, which is above marginal cost.
- ARs 60Correct
- BRs 40
- CRs 80
- DRs 20
Explanation
Total revenue = 100Q - 2Q², so MR = 100 - 4Q. Setting MR = MC gives 100 - 4Q = 20, so Q = 20. Price from demand = 100 - 2(20) = Rs 60. Rs 20 is wrong because it is the marginal cost (the competitive outcome), and Rs 40 results from wrongly using Q = 30.
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