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CA Foundation · Business Economics · Price Determination in Different Markets

A monopolist faces the demand function P = 80 - 4Q and has total cost TC = 200 + 8Q. What is the profit-maximising output and the maximum profit?

The profit-maximising output is 9 units with a maximum profit of ₹124. Equating MR (80 - 8Q) with MC (8) gives Q = 9, price ₹44, revenue ₹396, total cost ₹272, so profit is ₹124 after including fixed cost.

  1. AQ = 9, profit = ₹124Correct
  2. BQ = 9, profit = ₹324
  3. CQ = 10, profit = ₹200
  4. DQ = 18, profit = ₹124

Explanation

TR = 80Q - 4Q², so MR = 80 - 8Q. MC = 8. Setting MR = MC gives 72 = 8Q, so Q = 9. Price = 80 - 36 = 44. TR = 396, TC = 200 + 72 = 272, profit = 124. Profit of ₹324 ignores the fixed cost of ₹200 and subtracts only variable cost... in fact it comes from 396 - 72 = 324.

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