Question

Assume an Unregulated Monopolist with the following demand and cost data.

Q	P	TR	MR	Q	TC	MC	Profit / loss
0	130			0	50
1	120			1	90
2	110			2	120
3	100			3	140
4	90			4	170
5	80			5	210
6	70			6	260
7	60			7	320
8	50			8	390
9	40			9	470

#1) How much should the firm produce in order to maximize profits?

#2) What price will the firm charge?

#3) How much profit or loss does the firm make?

#4) How much would have been produced under Perfect Competition, and at what price?

Hint: Use the MR ≥ MC Rule!

Answer 1

Q	P	TR= P*Q	MR	Q	TC	MC	Profit / loss = TR - TC
0	130	0		0	50		-50
1	120	120	120	1	90	40	30
2	110	220	100	2	120	30	100
3	100	300	80	3	140	20	160
4	90	360	60	4	170	30	190
5	80	400	40	5	210	40	190
6	70	420	20	6	260	50	160
7	60	420	0	7	320	60	100
8	50	400	-20	8	390	70	10
9	40	360	-40	9	470	80	-110

1) The firm should produce 5 units to maximize profit. At this output level profit is $190.

2) The firm will charge $80

3) The firm will make a profit of $190.

4) Under Perfect Competition, the firm have been produced 5 units and charge $80.