Author Question: How does a monopoly decide the optimal amount of a good that it should produce? How does it set the ... (Read 45 times)

2125004343 · **on:** Jun 29, 2018

How does a monopoly decide the optimal amount of a good that it should produce? How does it set the price for its product?

What will be an ideal response?

Question 2

The above table gives the demand and supply schedules for cat food. If the supply increases by 20 tons at every price, what is the new equilibrium price and quantity?

What will be an ideal response?

momolu · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

A monopoly determines the optimal output at the point where its marginal revenue equals its marginal cost. Once the optimal output is determined, it traces the output to the demand curve that it faces to determine the maximum price that consumers are willing to pay for the product. This price is the highest price that a monopoly can charge for the quantity of output it produces.

Answer to Question 2

The equilibrium price is 1.50 per pound of cat food because that is the price at which the quantity demanded equals the (new) quantity supplied. The equilibrium quantity of cat food is 46 tons per year.