Question

# Price Quantity demanded Quantity produced Total cost 0.40 500      0 100 0.50 400 100 105...

 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?

 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.