Question

Suppose the following table gives the demand schedule for a monopolist. The monopolist has no fixed costs and faces a constant marginal cost of $15 per unit produced.

Price	Quantity
$51	1
$47	2
$42	3
$36	4
$29	5
$21	6
$15	7

a) What is the profit maximizing quantity for this monopolist? What price will it charge? What will be the firm’s profits?

b) Is the monopolist level of production efficient from society’s perspective? Explain why or why not.

c) If this were a competitive market what would be the long-run equilibrium price and quantity?

Answer 1

a) Under monopoly firm will produce output that maximises profit of firm i.e. 4 units. Price charged is $ 36 and firm's profit = $ 84.

b) No, monopoly output level is not efficient for society because firm is producing less output under monopoly.

c) Long run equilibrium price is $ 15 and quantity is 7 units as in long run, competitive market earns zero profit.