Paragraph 4.00 3.50 3.00 2.00 1.50 1.00 4400 Consider a Monopoly who is faced wi
ID: 1167022 • Letter: P
Question
Paragraph 4.00 3.50 3.00 2.00 1.50 1.00 4400 Consider a Monopoly who is faced with the above demand schedule. Answer the following questions and show your work (a) What is the MR from the 2400t unit it sells? (b) What is the MR from the 4000t unit it sells? (c) At what level of output is MR maximized? (d) Assume the firm has a constant MC and AC equal to $1, find the profit maximizing level of output? (e) Assume the firm has a constant MC and AC equal to S1, what is the profit maximizing price? (0 What is the maximum profit?Explanation / Answer
Total revenue (TR) = Price (P) x Quantity (Q)
Marginal revenue (MR) = Change in TR / Change in Q, computed as follows.
(a) MR from 2400th unit = $1
(b) MR from 4000th unit = -$3
(c) MR is maximized (= $1) when price is $3.50 and quantity is 2400 units.
(d) Profit is maximized when MR = MC, which holds true when MR = MC = $1 and Quantity = 2400.
(e) When quantity is 2400, price is $3.50.
(f) Profit = Quantity x (Price - AC) = 2400 x $(3.5 - 1) = 2400 x $2.5 = $6000
P ($) Q TR ($) MR ($) MC = AC ($) 4.00 2,000 8,000 1 3.50 2,400 8,400 1 1 3.00 2,800 8,400 0 1 2.50 3,200 8,000 -1 1 2.00 3,600 7,200 -2 1 1.50 4,000 6,000 -3 1 1.00 4,400 4,400 -4 1Related Questions
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