Question

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.)

Answer 1

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