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| Suppose that the demand for bentonite is given by Q = 40 – 0.5P, where Q is in tons of bentonite per day and P is the price per ton. Bentonite is produced by a monopolist at a constant marginal and average total cost of $10 per ton. a. Derive the inverse demand and marginal revenue curves faced by the monopolist. b. Equate marginal cost and marginal revenue to determine the profit-maximizing level of output. c. Find the profit-maximizing price by plugging the ideal quantity back into the demand curve. d. How would your answer change if marginal cost were instead given by MC = 20 + Q? |
