- a- (5 pts) What is the maximum possible profit that the monopolist can earn? (Calculate the exact amount of profit).
- (5 pts) How many units of output should a monopolist produce if the monopolist wants to maximize revenue rather than profits?
- (5 pts) What is the maximum obtainable total revenue for the firm?
- (5 pts) At the level of output you identified in part g, how much profit would the firm earn?
Homework Answers
a)
A monopolist maximizes profit by producing such that Marginal Revenue=Marginal Cost.
We can see that Marginal Cost and Marginal Revenue Curves intersect each other at
Price=$12
Quantity=80
ATC at Q=80 is $2 (Refer given graph)
Maximum Profit=(P-ATC)*Q=(12-2)*80=$800
b)
At maximum Revenue, MR should be zero. MR cuts horizontal axis at Q=100
Monopolist should produce 100 units to maximize Revenue.
c)
Refer to above demand curve, Price,P =$10 for Q=100
Maximum Revenue=P*Q=10*100=$1000
d)
At output level of 100, ATC=$2.5 (Approx)
Profit at this level=(P-ATC)*Q=(10-2.5)*100=$750
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