Question

In the following table are demand and cost data for a pure monopolist.

Complete the table by filling in the columns for total revenue, marginal revenue, and marginal cost.

Answer these three questions: (a) what output will the monopolist produce? (b) What price will the monopolist charge? (c) What total profit will the monopolist receive at the profit-maximizing level of output?

                                                                       Total            Marginal            Total            Marginal

                          Quantity      Price          revenue           revenue               cost                  cost     

                                    0           $34          $______                                          $ 20

                                    1              32             ______          $______                    36            $______

                                    2              30             ______             ______                    46              ______

                                    3              28             ______             ______                    50              ______

                                    4              26             ______             ______                    54              ______

                                    5              24             ______             ______                    56              ______

                                    6              22             ______             ______                    64              ______

                                    7              20             ______             ______                    80              ______

                                    8              18             ______             ______                 100              ______

                                    9              16             ______             ______                 128              ______

                                  10              14             ______             ______                 160              ______

Answer 1

Q	P ($)	TR ($)	MR ($)	TC ($)	MC ($)
0	34	0		20
1	32	32	32	36	16
2	30	60	28	46	10
3	28	84	24	50	4
4	26	104	20	54	4
5	24	120	16	56	2
6	22	132	12	64	8
7	20	140	8	80	16
8	18	144	4	100	20
9	16	144	0	128	28
10	14	140	-4	160	32

TR = P x Q

MR (nth unit) = TR (n units) - TR ((n-1) units)

MC (nth unit) = TC (n units) - TC ((n-1) units)

Profit is maximized at a quantity where the last unit produced yields MR > = MC:

a) Output produced = 6 units (MR > MC)

b) Price charged = $ 22 (corresponding to Q = 6)

c) Profit = TR - TC = 132 - 64 = $ 68