50 100 150 200 250 1000 600 480 360 280 225 TC 800 1,500 6,000 12,000 19,000 27,

Question

50 100 150 200 250 1000 600 480 360 280 225 TC 800 1,500 6,000 12,000 19,000 27,850 a) What is this monopolist's profit maximizing price and quantity? b) Calculate the monopolist's profits at the profit maximizing point. Profit = c) In the statement of this question, I told you that the firm was a monopolist· lf I had stated that it was perfect competition instead, could that also be correct? Explain why or why not. O No. The demand curve for this firm is downward sloping, and PC firms must have a horizontal demand curve. O Yes. MR MC just as it does in Perfect Competition.

Explanation / Answer

A monopolist produces a level of output determined by MR = MC. Find MR as difference of two successive TRs divided by increase in output. The same is done below

Profit is maximed at Q = 150 and P = 360. Here MC = MR = 120

Profit = 42000.

This indicates that for competitive firm marginal revenue would have been fixed reflecting a straight line demand curve. HENCE THE CORRECT CHOICE IS NO.

Q P TR MR MC TC Profit 0 1000 0 800 -800 50 600 30000 600 14 1500 28500 100 480 48000 360 90 6000 42000 150 360 54000 120 120 12000 42000 200 280 56000 40 140 19000 37000 250 225 56250 5 177 27850 28400

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