Suppose a Monopoly Firm Has an Annual Demand Function of Q^d

question 24

Multiple Choice

Suppose a monopoly firm has an annual demand function of Q^d = 20,000 - 250P,annual variable costs of VC = 16Q + 0.002Q² and marginal cost of MC = 16 + 0.004Q,where Q is the annual quantity of output.In addition,the firm has an avoidable fixed cost of $25,000 per year.If this firm maximizes its profit,what is the value of the deadweight loss caused by this monopoly?

• A) $242,000
• B) $55,250
• C) $30,250
• D) $5,250

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Definitions:

Risk Aversion

The tendency of individuals or entities to prefer outcomes with less uncertainty, avoiding risks in decision-making.

Economic Payoff

The financial return or profit resulting from an investment or action.

Bounded Rationality

The concept that when individuals make decisions, their rationality is limited by the information they have, the cognitive limitations of their minds, and the time available to make the decision.

Good Enough

A standard or condition that satisfies the basic requirements or criteria, without needing to be perfect.