question archive A monopolist faces the following demand and cost schedules
A monopolist faces the following demand and cost schedules
Subject:MarketingPrice:2.88 Bought3
A monopolist faces the following demand and cost schedules. Complete the table and answer the following questions.
| Price | Quantity | Total Cost | Total Revenue | Marginal Revenue | Marginal Cost |
|---|---|---|---|---|---|
| $50 | 20 | $100 | |||
| $49 | 21 | $110 | |||
| $48 | 22 | $125 | |||
| $47 | 23 | $145 | |||
| $46 | 24 | $170 | |||
| $45 | 25 | $200 |
a. How much output should the monopolist produce?
b. What price should the firm charge?
c. What is the maximum amount of profit that this firm can earn?
d. Should the firm shut down? Why or why not?
Purchase A New Answer
Custom new solution created by our subject matter experts
GET A QUOTE
Answer Preview
The table below fills in the table from above using the following formulas:
- Total revenue is equal to the price times the quantity.
- Marginal revenue is equal to the change in total revenue divided by the change in output (which is one).
- Marginal cost is equal to the change in total cost divided by the change in output (which is one).
| Price | Quantity | Total Cost | Total Revenue | Marginal Revenue | Marginal Cost |
|---|---|---|---|---|---|
| $50 | 20 | $100 | $1,000 | - | - |
| $49 | 21 | $110 | $1,029 | $29 | $10 |
| $48 | 22 | $125 | $1,056 | $27 | $15 |
| $47 | 23 | $145 | $1,081 | $25 | $20 |
| $46 | 24 | $170 | $1,104 | $23 | $25 |
| $45 | 25 | $200 | $1,125 | $21 | $30 |
a. How much output should the monopolist produce? 23 units. The firm should produce as long as the marginal revenue is greater than or equal to the marginal cost. This occurs up to and including the 23rd unit.
b. What price should the firm charge? $47. The price for 23 units is $47.
c. What is the maximum amount of profit that this firm can earn? $936. At 23 units, the profit equals the total revenue ($1,104) minus the total cost ($170).
d. Should the firm shut down? Why or why not? No. The firm should operate as long as it is earning positive economic profits, which it is here.
