12. The marginal revenues received by the monopolist when it supplies the first
ID: 1129429 • Letter: 1
Question
12. The marginal revenues received by the monopolist when it supplies the first 10 units of its product are, respectively, 20, 18, 16, 14, 12, 10, 8, 6, 4 and 2 dollars per product unit. The marginal costs suffered by the monopolist when it supplies the first 10 units of its product are, respectively, 1, 2, 3, 5,7,9,11, 14, 17 and 20 dollars per product unit. The Government wants to induce the monopolist to supply 8 units of its product to its market and, to achieve this outcome, the government will pay a subsidy of Ss to the monopolist for every unit produced. What is the smallest possible value for s? (a) $6 per product unit. (b) $8 per product unit. (c) $14 per product unit. (d) $20 per product unit. (e) None of the above.Explanation / Answer
In order that the monopolist produces the 8th unit :
Marginal cost (8th unit) after subsidy = Marginal revenue (8th unit) = $ 6
Marginal cost (8th unit) at present = $ 14
Therefore, subsidy = 14 - 6 = $ 8 per product unit (Option b)
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