Question

9. The following table depicts the daily output, price, and costs of a monopoly shop.

Output	Price per unit $	Total Costs $
0	8	6
1	7.50	9
2	7.00	11
3	6.50	12
4	6.00	14
5	5.50	18
6	5.00	23
7	4.50	30
8	4.00	40

a      Compute total revenue and total profit at each rate.

b      Determine the profit maximization output.

c      Compute marginal cost (MC) and marginal revenue (MR) at each output rate.

d      Determine the profit maximization output.

Answer 1

A. Total Revenue = Price * Quantity

= 7.5 * 1 = 7.5

Profit = Total Revenue - Total cost

= 7.5 - 9 = -1.5

B. Profit maximizing output will at that level where MC=MR, and MC cuts MR from below

Here At output level will be between 4 and 5 Units , MC is near and cuts MR curve between these 2 outputs

C. Marginal Cost = TC2 - TC1 / Change in output

= 9 - 6 / 1 - 0 = 3

Marginal Revenue = change in TR / Change in Output

= 7.5 - 0 / 1 - 0 = 7.5

D. Profit maximizing output For monopoly shop will be where MC=MR, and MC cuts MR curve from below. therefore at output between 4 and 5 units MC cuts MR curve totally

Q	PRICE	TC	TR	Profit	MR	MC
0	8	6	0	-6
1	7.5	9	7.5	-1.5	7.5	3
2	7	11	14	3	6.5	2
3	6.5	12	19.5	7.5	5.5	1
4	6	14	24	10	4.5	2
5	5.5	18	27.5	9.5	3.5	4
6	5	23	30	7	2.5	5
7	4.5	30	31.5	1.5	1.5	7
8	4	40	32	-8	0.5	10