4. In the table below are cost and demand data for a pure monopolist. Quantity d
ID: 1248274 • Letter: 4
Question
4. In the table below are cost and demand data for a pure monopolist.Quantity demanded Price Marginal revenue Average cost Marginal cost
0 $105.00
1 96.00 $ 96.00 $144.00 $144.00
2 87.00 78.00 90.00 36.00
3 78.00 60.00 70.34 30.00
4 69.00 42.00 63.00 42.00
5 60.00 24.00 60.00 48.00
6 51.00 6.00 58.50 51.00
7 42.00 –12.00 57.86 54.00
8 33.00 –30.00 57.50 55.50
9 24.00 –48.00 57.33 56.00
(a) What is the level of price, output, and amount of profit for an unregulated monopolist?
(b) Using the data in the table, what are the price, output, and profit for a regulated monopolist that sets price equal to marginal cost compared with an unregulated monopolist?
(c) Using the data in the table, what are the price, output, and profit for a regulated monopolist that charges a “fair-return” price compared with an unregulated monopolist?
(d) Analyze the effect of regulation on the allocation of resources. Which situation is most efficient? Which situation is most likely to be chosen by government? Why?
Explanation / Answer
(a) MR=MC, is 42, in which Q and P arethe profit maximizing output and price that an unregulatedmonopolist would choose. (b)P=MC ,is 51 where the equality indicatesan efficient allocation of resources to this product orservices. (c) (P=ATC) is 60 (d)It suffers losses ,when the price is set to achieve themost efficient allocation of resources (P=MC).Thesituation is most likely chosen by government is,The Socially optimal price (P=MC) achievesefficiency but may result in losses, the fair-returns price(P=ATC) yields a normal profit but fails toachieve allocative efficiency.
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