A single firm monopolizes the entire market for Batman masks and can produce at constant average and marginal costs of
AC = MC = 10.
Originally, the firm faces a market demand curve given by
Q = 60 – P
and a marginal revenue function given by
MR = 60 – 2Q
a. Calculate the profit-maximizing price-quantity combination for the firm. What are the firm’s profits?
b. Now assume that the market demand curve becomes steeper and is given by
Q = 45 – .5P
With the marginal revenue function given by
MR = 90 – 4Q.
What is the firm’s profit-maximizing price quantity combination now? What are the firm’s profits?
c. Instead of the assumptions in part b, assume that the market demand curve becomes flatter and is given by
Q = 100 – 2P
With the marginal revenue function given by
MR = 50 – Q.
What is the firm’s profit-maximizing price quantity combination now? What are the firm’s profits?
d. Graph the three different situations of part a, part b, and part c. Using your results, explain why there is no meaningful ‘‘supply curve’’ for this firm’s mask monopoly.