Scenario: Tobac Co

Multiple Choice

Scenario: Tobac Co. is a monopolist in the cigarette market in Nicotiana Republic, where the U.S. dollar is used as the official currency. The firm faces the demand curve shown below. The firm has a constant marginal cost of $2.00 per pack. The fixed cost of the firm is $50 million. To answer the questions below, it is useful to know that the equation of the (inverse) demand curve is P = 8 - 0.04Q, where Q is the quantity demanded (in millions of packs) and P is the price per pack (in $) . Also, you should draw in the marginal revenue curve.

-Refer to the scenario above.Tobac Co.'s total revenue is maximized when it sells ________ packs of cigarettes at ________ per pack.

A) 150 million; $2.00
B) 125 million; $3.00
C) 100 million; $4.00
D) 75 million; $5.00