Author Question: A monopolist's demand curve is given by: p = 100 + A1/2 Q where Q is the quantity of output and ... (Read 30 times)

joesmith1212 · **on:** Jul 1, 2018

A monopolist's demand curve is given by:

p = 100 + A1/2 Q
where Q is the quantity of output and A is the quantity of advertising. Suppose the cost of advertising and output is given by:
C(Q,A) = 10Q + A
Determine the profit maximizing quantity of output and advertising.

Question 2

Which of the following cost relationships is not true?

A) AFC = AC - MC
B) TVC = TC - TFC
C) The change in TVC/the change in Q = MC
D) The change in TC/ the change in Q = MC

bassamabas · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

The monopolist maximizes profit
Profit = (100 + A1/2 Q)Q 10Q + A
The first order conditions are:
dProfit/dQ = 100 2Q 10 = 0
dProfit/dA = .5A-1/2Q 1 = 0
Solve the first condition to find Q= 45. Use this to solve the second conditions for A = 506.

Answer to Question 2

A