Asked by Brian Doherty on Jun 01, 2024
Verified
Rabelaisian Restaurants has a monopoly in the town of Upper Glutton.Its production function is Q 40L, where L is the amount of labor it uses and Q is the number of meals produced.Rabelaisian Restaurants finds that in order to hire L units of labor, it must pay a wage of 40 .1L per unit of labor.The demand curve for meals at Rabelaisian Restaurants is given by P 13.75 Q/1,000.The profit-maximizing output for Rabelaisian Restaurants is
A) 12,000 meals.
B) 1,000 meals.
C) 6,000 meals.
D) 1,500 meals.
E) 750 meals.
Monopoly
A market structure characterized by a single seller, selling a unique product in the market with no close substitutes.
Production Function
An equation that specifies the output that can be produced by varying amounts of inputs, demonstrating how efficiently these inputs are converted into outputs.
Labor
The human effort, either physical or mental, used in the production process to create goods or provide services.
- Understand the relationship between labor, production, and wages in a monopolistic setting.
- Calculate profit-maximizing output levels for firms in various market scenarios.
Verified Answer
ZK
Zybrea KnightJun 07, 2024
Final Answer :
C
Explanation :
To find the profit-maximizing output, we need to first find the marginal revenue (MR) and marginal cost (MC):
MR = P'(Q) = 13.75 - 0.002 Q
MC = w/MPL = (40F1S1 + F10) / (0.4Q)
Setting MR = MC, we get:
13.75 - 0.002 Q = (40F1S1 + F10) / (0.4Q)
Solving for Q, we get:
Q = 6,000 meals
Therefore, the profit-maximizing output for Rabelaisian Restaurants is 6,000 meals.
MR = P'(Q) = 13.75 - 0.002 Q
MC = w/MPL = (40F1S1 + F10) / (0.4Q)
Setting MR = MC, we get:
13.75 - 0.002 Q = (40F1S1 + F10) / (0.4Q)
Solving for Q, we get:
Q = 6,000 meals
Therefore, the profit-maximizing output for Rabelaisian Restaurants is 6,000 meals.
Learning Objectives
- Understand the relationship between labor, production, and wages in a monopolistic setting.
- Calculate profit-maximizing output levels for firms in various market scenarios.