Question

# 4. The following are the demand and total cost schedules for the Normal Telephone Company, a...

4. The following are the demand and total cost schedules for the Normal Telephone Company, a local monopoly.

 Output (# of calls) Price (dollars per call) Total Cost (dollars) 0 .12 0 50,000 .11 2,000 100,000 .10 6,500 150,000 .09 11,000 200,000 .08 16,000 250,000 .07 23,000 300,000 .05 32,000

How much output will Normal Telephone company "produce," and what price will it charge?

Will it earn a profit? How much? (Hint: You first have to compute its MR and MC schedules. If you have two answers, choose the one with the lowest price.)

 Output Price Total Cost (# of calls) (dollars per call) (dollars) TR MR MC Profit 0 0.12 0 0 50,000 0.11 2,000 5500 0.11 0.04 3,500 1,00,000 0.1 6,500 10000 0.09 0.09 3,500 1,50,000 0.09 11,000 13500 0.07 0.09 2,500 2,00,000 0.08 16,000 16000 0.05 0.1 0 2,50,000 0.07 23,000 17500 0.03 0.14 -5,500 3,00,000 0.05 32,000 15000 -0.05 0.18 -17,000

From the above table, it would produce an output where MC=MR

It would produce an output of 1,00,000 # calls

It will charge the price of 0.1 dollars per call

Yes it would earn a profit of \$3500

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