Monopoly of Alpha Question Answer 2022

Running head: Monopoly of Alpha
Monopoly of Alpha
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Monopoly of Alpha1
Answer to Question 4:
Part b:
The demand equation of the firm is D= $1000-5Q
The profit maximising condition for a monopoly firm is MR=MC (Karl et al., 2019).
Therefore, the profit maximising level of output for Alpha is at the point where the firm’s
MR curve and MC curve intersects each other. Thus, the optimal output of Alpha is 90 units.
Now, to find the optimal price, let us substitute the quantity in the demand equation.
Where, D=P= $1000-5Q
Therefore, P =1000- (5*90)
P=1000-450
P=550.
Thus, the optimal level of the price charged by Alpha equals $550.
Thus, from the derived optimal price and output total revenue (TR) of the firm can be
obtained. We know that, TR = P*Q
Therefore, TR= 550*90
TR=$49,500
On the other hand, the total cost (TC) of the firm can be derived from the diagram. The total
cost of the firm can be derived by multiplying the output level with the price touching ATC
curve (Zha, Yin & Yang, 2016). The output point is where MR equalises MC ($350) and the
price level is the point where the intersecting point of MR and MC touches the ATC
(Average Total Cost) of the firm (90 units). Therefore, TC = $350*90
= $31,500