CIMA BA1 · Chapter 7 · Question 11 of 11
A monopolist faces the demand curve P = 100 - 2Q, giving marginal revenue MR = 100 - 4Q. Its total cost is TC = 500 + 20Q. What is the maximum profit the firm can earn?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) $300
Explanation
Marginal cost = 20. Set MR = MC: 100 - 4Q = 20, so Q = 20. Price = 100 - 2 x 20 = $60. Total revenue = 60 x 20 = $1,200. Total cost = 500 + 20 x 20 = $900. Profit = 1,200 - 900 = $300.
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