Question

Suppose the following schedule represents the demand curve for a non- discriminating, single price monopolist:

P Q TR MR

18 0

15 1

12 2

9 3

6 4

3 5

0 6

a. Complete the table.

b. Plot the demand and MR curves below.

c. Explain why the MR of the third unit is less than its price ($9).

d. Calculate the Elasticity of Demand at the price of $12?

e. Label the elastic, unitary elastic, and inelastic segments of the demand curve.

f. On your graph, draw in and label ATC and MC curves. (Construct your own without concern for numerical values.)

g. Show the profit maximizing quantity and price, labeling them Q* and P*.

h. Show the region that represents the profit (or loss) that the firm earns.

i. Comment on the productive and allocative efficiency of your results.

Answer #1

Table

P | Q | TR = Q*p | MR |

18 | 0 | 0 | _ |

15 | 1 | 15 | 15 |

12 | 2 | 24 | 9 |

9 | 3 | 27 | 3 |

6 | 4 | 24 | -3 |

3 | 5 | 15 | -9 |

0 | 6 | 0 | -15 |

B) graphs

C)

MR of third unit = 3, which is less than Price= 9

When price falls, more is bought , MR is addition to Total Revenue from sale of extra unit, while Price is a fixed value,

When P falls, Q rises, TR will rise

D) Elasticity of demand at P = 12

= (P/Q)*(dQ/dP)

= (12/2)*(1/3)

= 6/3

= 2

E)

Elastic, when e > 1, MR is positive

e= 1, unitary elastic, MR cuts X axis

e < 1, in Elastic, MR is Negative

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18 0
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12 2
9 3
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0 6
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