Harry Smith owns a metal- producing firm that is an unregulated monopoly. After considerable experimentation and research, he finds that the firm’s marginal cost curve can be approximated by a straight line, MC= 60 +2Q, where MC is marginal cost (in dollars) and Q is output. The demand curve for the product is P =100 - Q, where P is the product price (in dollars) and Q is output. A. If Smith wants to maximize profit, what output should he choose? B. What price should he charge?

1. 10 units

2. 90 dollars

Explanation:

1. Total revenue = P x Q

= (100 - Q) x Q

= 100 - Q^2

Marginal revenue = dTR/dQ

=100 - 2Q

MR = MC

100 - 2Q = 60 + 2Q

100 - 60 = 4Q

40 = 4Q

Q = 10 units

2. Putting price of Q = 10 in the price equation

P = 100 - Q

P = 100 - 10

Price = 90

the answer is "b.the increased supply will create a surplus. "

the essential thought behind price controls is straightforward - utilize the power of law to modify the equilibrium of a market. for instance, the legislature may choose that the steel business needs to survive, and in this way pass a law to set a value floor on steel. this implies all steel sold must offer at or over the floor value, which must be set over the equilibrium cost for it to have any impact. the switch could likewise happen - the administration can choose that steel is excessively costly and set a value roof underneath its equilibrium value, with the goal that all steel must be sold at or beneath that ceiling.