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A Monopolist has a cost function of C(y)=y so that marginal costs are constant at $1 per unit. If it faces the demand curve D(P)= 100/P,if P<=20 and zero if P>20.
a)-- what ia the profit maximising choice of output and price?
b)-- If the govt. could set a price ceiling on this monopolist in order to force it to act as a competitor, what price should they set?
c)-- What output would the monopolist should produce it forced to behave as a competitor?
Someone please help in part a), I am not getting.
My logic was like this,since this demand curve is rectangular hyperbola and its price elasiticty is (-1) so its MR will be zero because it is a constant elasticity function and since MC=1(which is positive) so MR and MC will never going to intersect hence output produced by monopolist will be zero.
But my answer is not matching. So someone please help.
I got the answer of part b) and c).
In part b) I equated the price(P)=MC=1 becauss the govt. Wants him to acts like a competitor. So price will be one and for part c) At price=1 i calculated the demand which is 100.
Please help me and correct me if i am approaching wrong.
Thanks:)
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