(Scenario: a Monopolist) a Monopolist Faces a Demand Curve Given

question 94

Multiple Choice

(Scenario: A Monopolist) A monopolist faces a demand curve given by P = 20 - Q and has total costs given by TC = Q². By using a bit of calculus, you should be able to determine that the firm's marginal revenue is MR = 20 - 2Q and its marginal cost is MC = 2Q. If the firm's profit-maximizing output level is 5 and its profit-maximizing price is $15, what are its monopoly profits at this price and quantity?

• A) $25
• B) $50
• C) $75
• D) $100

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Definitions:

Fixed Costs

These are expenses that do not change with the level of production or sales, such as rent, salaries, and insurance premiums.

Economy Strong

A state wherein an economy is experiencing robust growth, low unemployment, and increasing levels of consumer spending and business investment.

Operating Leverage

Operating leverage describes the degree to which a company can increase its profits by increasing sales, reflecting the proportion of fixed costs to variable costs.

Sales Decrease

A reduction in the volume or value of sales within a company during a specific period compared to a previous period.