Question
Cutting Edge Pharmaceuticals Pty Ltd (a monopoly firm) has the following demand (average revenue) function: AR = 65 - Q The marginal cost of production
Cutting Edge Pharmaceuticals Pty Ltd (a monopoly firm) has the following demand (average revenue) function:
AR = 65 - Q
The marginal cost of production is constant and equal to $5.
a) What is the equation for the MR function? (Hint: MR falls twice as fast (at twice the rate) as AR) (1/2 mark) Determine the profit maximizing level of output (Qm) for the Monopoly firm (1/2 mark)
b) What is the equilibrium monopoly price (Pm) set by the firm (1/2 mark) and what will be the monopoly profit earned? (1/2 mark)
c) Illustrate and label the market demand and marginal cost, average cost of this firm as well as, profit maximizing price and quantity and profit level on a diagram (3 marks)
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