Question
A monopoly firm faces a typical downward-sloping demand (D) curve, a corresponding downward-sloping marginal revenue (MR) curve below the demand curve, and an upward-sloping marginal
A monopoly firm faces a typical downward-sloping demand (D) curve, a corresponding downward-sloping marginal revenue (MR) curve below the demand curve, and an upward-sloping marginal cost (MC) curve. It currently produces at an output level of 100,000 units, where marginal revenue (MR) is $25, and marginal cost (MC) is $40.
1.Write the profit-maximising rule for determining the level of output and pricecharged by the monopolist.
2.Explain the economic reasoning for this profit maximisation rule, and evaluate which market structures this rule applied to, and why.
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