Scenario: Tobac Co

Multiple Choice

Scenario: Tobac Co. is a monopolist in cigarette market in Nicotiana Republic where the U.S. dollar is used as its 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.When Tobac Co.'s profit is maximized,the consumer surplus is ________ and the producer surplus is ________.

A) $225 million; $75 million
B) $200 million; $100 million
C) $150 million; $150 million
D) $112.5 million; $225 million