A Monopolist Faces Linear Inverse Demand $P = a - b Q$

question 56

Multiple Choice

A monopolist faces linear inverse demand $P = a - b Q$ and constant marginal cost, $c$ . The term $a$ increases by amount $\Delta a$ . By how much does the monopolist's optimal price increase?

• A) \(\Delta a\).
• B) \(\Delta a / 2\).
• C) \(\Delta a - c\).
• D) \(\Delta a / b\).

Comprehend the necessity of incorporating the time value of money in investment decision-making.

Identify and categorize costs relevant to specific business decisions, including sunk costs, incremental costs, and opportunity costs.

Analyze investments by comparing cash outflows with expected cash inflows and understanding the importance of a hurdle rate.

Apply decision-making criteria to assess whether to accept or reject specific investment opportunities.

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Definitions:

Variable Costs

Costs that fluctuate in direct proportion to changes in production or sales volume, such as raw materials and labor.

CVP Income Statement

A financial document that applies Cost-Volume-Profit analysis to delineate how changes in cost and volume affect a company's operating income and net income.

Variable Expenses

Costs that change in proportion to the activity of a business.

Break-Even Point

The point at which total revenues equal total costs, indicating no net loss or gain, and where a business starts to generate profit with any additional sales.