Consider the following demand curve faced by a monopolist:
Q = 112,000 - 500P + 5M
Note: P = per unit price; Q = number of units; M = consumer's average income.
Assume that the fixed costs of production for this monopolist are $100,000, that average consumer income is $20,000, and that average variable costs are given by:
AVC = 200 - 0.012Q + 0.000002Q2
(a) What is the profit maximizing level of output for this monopolist? What price will the firm charge? What profit will the firm earn?
(b) What are your answers to (a) if average consumer income is $30,000?