Question

. Monopoly. 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

1> We know the revenue is the product of price and quantity, the marginal revenue is the additional revenue generated from a product. So, we have

2> The Demand curve equation is not there, the plot for MR curve is -

3> It is because as the producer wants to sell more product, the price of that has to be decreased, thus it leads to a decreasing marginal revenue curve. Here, the MR for the third unit has fallen below $9 which is the price.

4> Elasticity of demand is [(q2-q1)/(q2+q1)*0.5]/[(p2-p1)/(p2+p1)*0.5] = [(3-2)/(2+3)*0.5]/[(9-12)/(12+9)*0.5]

=(1/2.5)/(-3/10.5) = -1.4 (Ans)