The marginal revenues received by the monopolist when it supplies the first 10 u
ID: 1129544 • Letter: T
Question
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 $s 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
The Government wants to induce the monopolist to supply 8 units of its product to its market . But when monopolist produce 8 units of output then, MR<MC. And to achieve this outcome, Governemnt will pay a subsidy of $s to the monopolist for every unit produced. So, the smallest possible value of s is equal to the difference between the marginal cost and marginal revenue at 8th unit production.
Therefore, smallest possible value of s = $(14 - 6)per product unit = $8 per product unit. Hence, option(B) is correct.
Quantity Marginal revenue (MR) Marginal cost(MC) 1 20 1 2 18 2 3 16 3 4 14 5 5 12 7 6 10 9 7 8 11 8 6 14 9 4 17 10 2 20Related Questions
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