Question

Suppose the daily market demand for meat in a small town is given by


Qd = 5/3p^2


where Qd is the quantity demanded (pounds of meat), and p is the price per pound of meat.


Suppose this market is served by a profit-maximizing monopolist (that is, there is only one butcher in this town). Suppose also that the price charged per pound of meat is $0.50. The monopolist's marginal cost must be _______.

Answer 1

Answer:

$0.50

Explanation:

A profit-maximizing monopolist maximizes profit at the point where its marginal revenue (MR) is equal to its marginal cost (MC) (i.e. where MR = MC).

In economics, MR is equivalent to price per unit (P).

Since the profit-maximizing monopolist charged $0.50 per pound of meat, that means P = $0.50.

Since MR = P, it implies that MR = P = $0.50.

Also, since a profit-maximizing monopolist maximizes profit at MR = MC, it implies that MR = P = MC = $0.50.

Therefore, the monopolist's marginal cost must be $0.50.