# A monopolist faces a demand curve P = 70 - 1Q, with marginal revenue MR = 70 - 2Q, and MC = 20. Price is expressed in dollars.?

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a)How to graph the three functions on one diagram.

b) How to compute the profit-maximizing output and price combination on the graph.

c) How to compute the efficient level of output (where MC = demand) on the graph

d) How to compute the deadweight loss associated with producing the profit-maximizing output rather than the efficient output ?

a)How to graph the three functions on one diagram.

b) How to compute the profit-maximizing output and price combination on the graph.

c) How to compute the efficient level of output (where MC = demand) on the graph

d) How to compute the deadweight loss associated with producing the profit-maximizing output rather than the efficient output ?

##### 1 Answer

Profit maximising quantity and price combination.

Price

Quantity

DWL

#### Explanation:

Given -

#p=70 - Q# ------ -----------[Demand function]

#MR=70-2Q# ---------------[Marginal Revenue function]

#MC=20# --------------------[Marginal Cost function]

Profit Maximising Price and Output combination

Condition for maximum profit

#MR = MC#

#70-2Q=20#

#-2Q=20-70=-50#

#Q=(-50)/(-2)=25#

Profit maximising quantity#=25# units

Substitute

#p=70-Q#

#p=70-25=45#

Profit maximising price

Condition for Efficient level of output

#D= MC#

#70-Q=20#

#-Q=20-70=50#

#Q=50#

Efficient level of output

Dead Weight Loss is the green colour area.

DWL

DWL