BUS 640 Week 4 Market Structures and Pricing Decisions Applied Problems

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.

1. 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.
2. What profit do you expect that the firm will make in the first year?
3. Do you expect this profit level to continue in subsequent years? Why or why not?