Using Figures 17-2 and 17-3 as a guide, assume a price-setting monopolist firm with no fixed costs and constant marginal cost (MC0) of $3.00 faces an original demand curve P = 10 - 0.1Y.
In Figures 17-2 and 17-3
How a Monopolist Sets Price to Maximize Profits

Small Menu Costs Can Lead to Large Social Costs

(a) What is the equation of the firm€™s marginal revenue curve (MR0)? (Recall that for a linear demand curve, MR is twice as steep as demand.)
(b) What quantity will the firm produce to maximize profits? What price will it set to ensure that it sells all that it produces?
(c) At the profit-maximizing price, what is the firm€™s total revenue? Total cost? Profit?
(d) What is the value of consumer surplus?

Transcribed Image Text:

Initial demand Initial demand Consumer surplus a 0 Profit Initial MCO Initial MCD Co MR Output (Y) Output (Y) Initial demand New demand New demand 2 0 A D E, Initial MC C1 Required MC, l Required MC