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CMA Foundation · Fundamentals of Business Economics and Management · Forms of Market

A monopolist faces the demand curve P = 100 - 2Q, where P is price in rupees and Q is quantity. Its marginal cost is constant at Rs 20. What is the profit-maximising price?

The profit-maximising price is Rs 60. Marginal revenue is 100 - 4Q, and equating it to marginal cost of Rs 20 gives output of 20 units. Substituting into the demand curve gives price 100 - 2(20) = Rs 60, which is above marginal cost.

  1. ARs 40
  2. BRs 50
  3. CRs 60Correct
  4. DRs 80

Explanation

TR = 100Q - 2Q^2, so MR = 100 - 4Q. Setting MR = MC gives 100 - 4Q = 20, so Q = 20. Price = 100 - 2(20) = Rs 60. Rs 40 is the price from setting P = MC (Q = 40, the competitive outcome), which is wrong for a monopolist.

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