Question

If the MR curve of a monopoly firm is given by the equation MR=20-2q, what is the maximum value of TR? (Prices and revenues are in rupees)

• A. Rs 25
• B. Rs 50
• C. Rs 100
• D. Rs 200

Answer 1

The correct option is C

Rs 100

Given that the MR curve is given by the equation
$MR=20-2q$
The slope of the MR curve is -2. Since the MR curve is twice as steep as the demand curve, the slope of the demand curve is -1.
Also, MR and demand curves start from the same point. Hence the equation of the demand curve is
$p=20-q$

TR is maximum when MR=0 i.e when 20-2q =0.
Hence, TR is maximized at an output level of 10.

At q=10, the maximum price that the firm can set can be obtained from the demand curve
$p=20-10=Rs10$

$TR=p\times q=10\times 10=Rs100$