Question

4. Company X is a monopolist that can sell its output at these prices and with these total costs:

                                           Output              Price         Total Cost

                                                4                    $27                 $28

                                                5                      26                   34

                                                6                      25                   42

                                                7                      24                   52

                                                8                      23                   64

                                                9                      22                   88

                                              10                      21                 105

                                              11                      20                 125

                                              12                      19                 148

                                              13                      18                 174

                                              14                      17                 204

4.1. What level of output will company X choose to produce? What are the selling price and profit?

4.2. Suppose that company X produced at the level that a perfectly competitive industry would, with marginal cost equal to price. What would be the output, price, and profit?

Answer 1

4.1)

Q	P	TC	MC	TR	MR	Profit
4	27	28		108		80
5	26	34	6	130	22	96
6	25	42	8	150	20	108
7	24	52	10	168	18	116
8	23	64	12	184	16	120
9	22	88	24	198	14	110
10	21	105	17	210	12	105
11	20	125	20	220	10	95
12	19	148	23	228	8	80
13	18	174	26	234	6	60
14	17	204	30	238	4	34

MC of n the unit=(TC of n units -TC of p units )/(n-p)...............n>p

TR=P*Q

MR of n th unit=(TR of n units -TR of p units)/(n-p)...................n>p

profit=TR-TC
The firm produces at MR=MC or the closet lower MC

Q=8, P=$23 and profit=$120

4.2)

Using the above table,

Here, the output is produced at MC=P, it is at Q=11 and MC=P=$20
Profit=$95