A price ceiling of P makes the marginal revenue also equal to P for outputs from zero
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A price ceiling of P makes the marginal revenue also equal to P for outputs from zero to the output corresponding to P on the demand curve. Suppose a monopoly can sell one unit of output for $20, two units for $18, three for $16, and so forth (it has to lower its price by $2 to sell each added unit). The marginal and average cost for all units of output is $6.
a. What price will the monopoly charge? How many units will it produce?
b. If the government imposes a price ceiling of $16, how many units will it produce? Of $10? Of $6?
c. What will happen if it imposes a price ceiling of $4?
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Without a price ceiling the MR for the first unit of output is ...View the full answer
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