Question

Table 15-19 A monopolist faces the following demand curve: Quantity Price 0 $20 1 $18 2...

Table 15-19

A monopolist faces the following demand curve:

Quantity

Price

0

$20

1

$18

2

$16

3

$14

4

$12

5

$10

6

$8

7

$6

8

$4

9

$2

10

$0

Refer to Table 15-19. If a monopolist faces a constant marginal cost of $9, how much output should the firm produce?

a.

2 units
b.

3 units
c.

4 units
d.

5 units
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    Homework Answers

    Answer #1
    Quantity Price TR MR
    0 20 0 ----
    1 18 18 18
    2 16 32 14
    3 14 42 10
    4 12 48 6
    5 10 50 2
    6 8 48 -2
    7 6 42 -6
    8 4 32 -10
    9 2 18 -14
    10 0 0 -18

    TR = price * quantity

    MR = (change in TR / change in quantity)

    A monopolist produces till MR is higher than MC or MR = MC.

    The firm faces a marginal cost of $9 at each level of output.

    We can see that, till 3 units of output MR is higher than MC. Hence, firm should produce 3 units of output.

    Answer: Option (B)

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