Thursday, December 13, 2007

Internet Browsers Again


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


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.

No comments: