Question

Question 1 Instructions: Show all steps for each part of the question below. The accompanying diagram shows the demand, marginal revenue, and marginal cost of a monopolist. Below the graph is the market demand curve.

Answer 1

A) TR=P*Q

AR = TR/Q

Q	P	TR	AR
80	10	800	10
70	20	1400	20
60	30	1800	30
50	40	2000	40
40	50	2000	50
30	60	1800	60
20	70	1400	70
10	80	800	80

B) The firm sets MC=MR for profit maximization

It will produce Q = 30 units

PRICE 80 70 10 20 30 40 50 70 80 Q 60 MR

C) Price = 60

D) In the case of a perfectly competitive industry, it will set P=MC for profit maximization

Q = 50 units

PRICE 80 10 20 30 40 50 70 80 Q 60 MR

Price = 40