Question

LO10-2 7. The following table summarizes the W News, p. 223)? Price Total Quantity Demanded hizes the weekly sales and cost situation confronting a monopolist: Average Total Marginal Revenue Revenue Cost Cost Cost noted Total Marginal Total cost $22 20 $4 18 16 14 12 WNO 8 13 19 27 10 37 51 69 (a) Complete the table. (b) Graph the demand, MR. and MC curves on the following graph. (c) At what rate of out At what rate of output is total revenue maximized within this range? the values of MR and MC at the revenue-maximizing rate of output? MR MC (e) At what rate of output are profits maximized? (f) What are the values of MR and te the values of MR and MC at the profit-maximizing rate of output? MR MC (g) What are total profits at that output rate? (h) If a competitive industry confronted the produce in the short run? ave industry confronted the same demand and costs, how much output would it PRICE OR COST (dollars per unit) 1 2 3 4 5 QUANTITY (units per week) 6 7 236

Answer 1

a.

Q	P	TR	TC	MC	MR	ATC
0	22	0	4	nil	nil	nil
1	20	20	8	4	20	8
2	18	36	13	5	16	6.5
3	16	48	19	6	12	6.33
4	14	56	27	8	8	6.75
5	12	60	37	10	4	7.4
6	10	60	51	14	0	8.5
7	8	56	69	18	-4	9.86

TR = P * Q

MR = $\Delta TR/\Delta Q$

MC = $\Delta TC/\Delta Q$

ATC = TC/Q

b.  

Price, MR, MC 5 6 7 QUANTITY QMRMC

c. TR is maximised at a point where the MR is zero.

This occurs at 6th unit of output.

d, Revenue is maximised with MR = 0 and MC = $14.