Use the data provided for a monopolist’s Demand and Costs. Calculate Total Reven
ID: 1114540 • Letter: U
Question
Use the data provided for a monopolist’s Demand and Costs. Calculate Total Revenue, Marginal Revenue, and Marginal Cost. What output level will the monopolist produce? What price will consumers pay for that level of output? How much is the monopolist’s economic profits (or losses) at that output?
Demand Data
Cost Data
Price
Quantity Demanded
Output
Total Cost
$5.50
3
3
6.00
5.00
4
4
6.50
4.50
5
5
7.50
4.00
6
6
9.00
3.50
7
7
11.00
3.00
8
8
14.00
Demand Data
Cost Data
Price
Quantity Demanded
Output
Total Cost
$5.50
3
3
6.00
5.00
4
4
6.50
4.50
5
5
7.50
4.00
6
6
9.00
3.50
7
7
11.00
3.00
8
8
14.00
Explanation / Answer
(1)
Working notes:
(i) Total revenue (TR) = Price (P) x Quantity (Q)
(ii) Marginal revenue (MR) = Change in TR / Change in Q
(iii) Marginal cost (MC) = Change in Total cost (TC) / Change in Q
Therefore
(2)
Monopolist maximizes profit by equating MR and MC. From above table, MR = MC = $1.5 when
Price = $4
Quantity = 6 units
(3)
When Q = 6,
Profit ($) = TR - TC = 24 - 9 = 15
P ($) Q TR ($) MR ($) TC ($) MC ($) 5.5 3 16.5 6 5 4 20 3.5 6.5 0.5 4.5 5 22.5 2.5 7.5 1 4 6 24 1.5 9 1.5 3.5 7 24.5 0.5 11 2 3 8 24 -0.5 14 3Related Questions
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