Question

Price	Quantity demanded		Quantity produced	Total cost
0.40	500		0	100
0.50	400		100	105
0.60	300		200	120
0.70	200		300	145
0.80	100		400	180
0.90	0		500	225

The above schedule shows the price, quantity demanded, quantity produced and total cost for a monopoly firm.

1. Calculate the marginal revenue, marginal cost and average total cost schedules.
2. What are the profit-maximizing output, price and economic profit?
3. At the price charged, is the demand elastic or inelastic? Explain your answer.
4. Will it try to price discriminate? Why or why not?

Answer 1

Price	Quantity demanded	Quantity produced	Total cost	Marginal revenue	Marginal cost	Average total cost
.4	500	0	100	-	-	-
.5	400	100	105	0	.5	1.05
.6	300	200	120	.20	.15	.6
.7	200	300	145	.40	.25	.48
.8	100	400	180	.60	.35	0.45
.9	0	500	225	-.80	.45	0.45

a. Marginal revenue= Change in total revenue/ change in quantity Demanded

Marginal cost= Change in total cost/ change in quantity

Average total cost= Total cost/ Quantity

b . Profit maximising output= 300

Price=0.6

Average total cost=0.48

Economic profit=(P-ATC)*Q= (0.6-0.48)*300= $36

c. Demand is elastic at profit maximising level. Monopoly always operates at elastic portion of demand curve.

Price Elasticity of demand=((300-400)/(400+300)/2)÷(0.6-0.5)/(0.6+0.5)/2)= -1.57

d. No, price discrimination is not possible in this case because all consumers faces the same demand.