Q:

In the Internet Browsers problem on the 2006 exam, in part a, where does the $30 come from?

A:

A monopolist that is maximizing profit is going to produce at the quantity where MR=MC. In this case, MC is constant at $10. Marginal revenue has the same price intercept as demand and is twice as steep. The equation for this is MR=50-Q. So 50-Q has to equal 10 and Q is 40. The price in the demand equation such that quantity demanded is 40 is $30.

## Thursday, December 13, 2007

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