question archive A monopoly is considering selling several units of a homogeneous product as a single package
A monopoly is considering selling several units of a homogeneous product as a single package
Subject:EconomicsPrice:2.89 Bought3
A monopoly is considering selling several units of a homogeneous product as a single package. A typical consumer's demand for the product is Qd = 70 - 0.5P, and the marginal cost of production is $90.
a. Determine the optimal number of units to put in a package.
b. How much should the firm charge for this package?
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(a) The optimal number of units to put in a package = 12.5 units
(b) The firm should charge for this package = $115
The optimal quantity and price for the monopolist will be when
MR=MC
We know,
Qd = 70 - 0.5P
Therefore, P = (70 / 0.5) - (Qd / 0.5)
= 140 - 2Qd
Hence, Total Revenue = P * Q
140Q - 2Q2
If MR = MC, 140 - 4Q = 90
Q = 50 / 4 = 12.5 units.
Now, P =140 - 2Q
P = 140 - 2 * 12.5
P = 140 - 25 = 115
