DSE 2009 Doubt

Posted by Manvendra on Mar 09, 2012; 12:55pm
URL: http://discussion-forum.276.s1.nabble.com/DSE-2009-Doubt-tp7358135.html

DSE 2009

A monopoly faces the demand curve P = 8 - Q .The monopoly has a constant unit cost equal to 5 for Q <= 2 and a constant unit cost equal to 3 for Q > 2. Its profit maximizing output equals :
 a) 3/2
b) 2
c) 5/2
d) Both 3/2 and 5/2

In the above question if we apply MR = MC , we get 3/2 and 5/2 as the profit maximizing quantities . But if we calculate the profits separately we find that the profit when Q = 5/2 is greater than when Q= 3/2.



So what should be the correct option.