Suppose a monopolist faces the demand curve described in the table below. The mo

Question

Suppose a monopolist faces the demand curve described in the table below. The monopolist cannot price discriminate and must charge the same price for each unit sold. Marginal revenue is the change in total revenue caused by producing and selling one more unit of output. The demand curve in the graph has already been plotted with blue circles. The marginal revenue for units 1 and 2 is shown as red plus signs. (The red plus for marginal revenue at a quantity of 1 covers up the blue dot in the same position.) Notice that the convention followed here is to plot the marginal revenue associated with a particular unit above that unit. For example, when output increases from 0 to 1, revenue goes up by $10 so the marginal revenue is $10 per unit. In the graph, this is plotted above the quantity 1. Sometimes economists plot the marginal revenue associated with an increase from 0 to 1 between the two lines showing quantities of 0 and 1. Both conventions--plot the point at quantity =1 or plot the point at quantity = 1/2--show the same information in the graph. The choice of which convention to follow is somewhat arbitrary, but for purposes of plotting data, it is easier to put points above quantities that are whole numbers, as is done here. Plot the the marginal revenue for quantities 3, 4, and 5, using the orange squares for the points. Tool tip: Place data points on the graph by positioning your cursor at the appropriate point and clicking your mouse. Use the hand tool to move points, the eraser tool to remove individual points and the C tool to clear all your work. When you are satisfied with your answer, click the Submit Answer button.

Explanation / Answer

The easiest way to find the Marginal Revenue for each unit is to calculate the Total Revenue first. TR(1) = 1x10 = 10 TR(2)= 2x8 = 16 TR(3)= 3x6 = 18 TR(4) = 4x4 = 16 TR(5)= 5x2 = 10. The Marginal Revenue is the change in TR when the next unit is produced. Therefore, MR(1)= 10 (which is already plotted), MR(2)=6 (also already plotted), MR(3)= 16 -> 18 = 2, MR(4)= 18 -> 16 = -2, MR(5)= 16 -> 10 = -6. Hope that Helps!!

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