Earlier we mentioned the special case of a monopoly where MC = 0. Let’s find the firm’s best choice when more goods can be produced at no extra cost. Since so much e-commerce is close to this model—where the fixed cost of inventing the product and satisfying government regulators is the only cost that matters—the MC = 0 case will be more important in the future than it was in the past. In each case, be sure to see whether profits are positive! If the “optimal” level of profit is negative, then the monopoly should never start up in the first place; that’s the only way they can avoid paying the fixed cost.
a. P = 100 - Q. Fixed cost = 1,000.
b. P = 2,000 - Q. Fixed cost = 900,000. (Driving the point home from part a.)
c. P = 120 - 12Q. Fixed cost = 1,000.