A small business which produces plastic vacuum-suction covers for round household dishes has a monopoly that is protected by a utility patent. The market demand curve for this product is estimated to be: Q = 6009 %u2013 25P where Q is the number of plate covers per year and P is in dollars. Cost estimation processes have determined that the firm%u2019s cost function is represented by TC = 120 + 2500Q -0.25*Q2.
- What is the profit-maximizing price and output level? Solve this algebraically for equilibrium P and Q and also plot the MC, D and MR curves and illustrate the equilibrium point.
- What profit do you expect that the firm will make in the first year?
- Do you expect this profit level to continue in subsequent years? Why or why not?