a. For the following three cases, calculate
i. The marginal revenue curve
ii. The level of output where MR = MC (i.e., set the equation from item i equal to marginal cost and solve for Q)
iii. The profit-maximizing price (i.e., plug your answer from equation ii into the demand curve)
iv. Total revenue and total cost at this level of output
v. What entrepreneurs really care about—total profit
Case A: Demand: P = 50 - Q Fixed cost = 100 Marginal cost = 10.
Case B: Demand: P = 100 - 2Q Fixed cost = 100 Marginal cost = 10.
Case C: Demand: P = 100 - 2Q Fixed cost = 100 Marginal cost = 20.
b. What’s the markup in each case? Measure it two ways: first in dollars, as price minus marginal cost, and then as a percentage markup [100 × (P – MC)/MC, reported as a percent].
c. If you solved part b correctly, you found that when costs rose from Case B to Case C, the monopolist’s optimal price increased. Why didn’t the monopolist charge that same higher price when costs were lower? After all, they’re a monopolist, so they can charge what price they want. Explain in language that your grandmother could understand.