Homework: Homework 7 Score: 0 of 2 pts Concept: Profit Maximization Table1 Suppo
ID: 2439590 • Letter: H
Question
Homework: Homework 7 Score: 0 of 2 pts Concept: Profit Maximization Table1 Suppose a cable company provides cable service to a small town. The total revenue, marginal revenue, total cost, and marginal cost of providing various quantties of 13 of 19 (11 complete) HW Score: 53.33%, 16 of 30 pts cable subscriptions (units in thousands per month) are presented in the table below Quantity Price Total Revenue Marginal Revenue Total Cost Marginal Cost 118 168 212 110 140 220 47 Assume the local cable company is a monopoly To maximize profts, the monopoly should produce 4 (thousand) units. (Enter a numeric response using an integer) At that level of output, the cable company will earn economic profits of s(thousand per month) Enter your answer in the answer box and then click Check Answer.Explanation / Answer
A monopoly is a firm with sufficient market power that it can raise the price of the good above marginal cost and enjoys super normal profit; without fearing that other firm will enter into the market. To maximize profit a firm should produce until marginal revenue equals marginal cost. Thus, the equilibrium quantity is determined from the point of interaction between marginal revenue and marginal cost curve. The equilibrium price is determined from the demand curve; the monopolist set that price which consumers are willing to pay for equilibrium quantity.
The monopolist sales and cost data is given in the table below
A monopolist is a profit maximizing firm. Thus, it will produce the quantity for which it will get highest profit. Thus, the profit column is constructed at the right end of the table above. For maximizing profit firm the highest profit the firm can get is $72 thousands. It occurs at Q=4.
On the other hand the monopolist will keep producing the output until MR>MC. The MR is above MC until Q=4, from Q=5, MC>MR. Then the firm should produce Q=4.
Q P TR MR TC MC Profit 0 65 0 0 0 1 62 62 62 60 60 2 2 59 118 56 90 30 28 3 56 168 50 110 20 58 4 53 212 44 140 30 72 5 50 250 38 220 80 30 6 47 282 32 320 100 -38Related Questions
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