Week 6 Homework
Ch. 8: Problem 4, Page 264
4. You are the manager of a monopoly, and your demand and cost functions are given by P = 300 –
3Q and C(Q) = 1,500 + 2Q^2, respectively.
1. a. What price–quantity combination maximizes your firm’s profits?
Answer: Price is $210 and Quantity is 30 units to maximize profits
2. b. Calculate the maximum profits.
Answer: The maximum profit is $3,000
3. c. Is demand elastic, inelastic, or unit elastic at the profit-maximizing price–quantity combination?
(Work for part a., b., and c.)
Answer: E= -2.33 therefore demand is elastic when at the profit maximizing price and quantity
combination.
4. d. What price–quantity combination maximizes revenue?
5. MR=0 for revenue maximization.
Answer: 50 units is the output that will maximize revenue.
6. e. Calculate the maximum revenues.
Answer: The Maximum revenue is $7,500
7. f. Is demand elastic, inelastic, or unit elastic at the revenue-maximizing price–quantity combination?
(Work for parts d., e., and f.)
Answer: The demand is unit Elastic corresponding to MR=0, at the revenue maximizing price and
quantity combination.
Ch. 9 Problem 2, Page 296
1. a. Determine the reaction function for each firm.
P = 200 – 3(Q1+Q2)
P = 200 – 3Q1 – 3Q2
TR1 = (P)Q1 = (200)Q1 – (3)Q1^2 – (3)Q1Q2
