Question

3. Total and average revenue of a monopolist Suppose that Musashi is the only seller of trekking poles in a small town. The following graph shows the demand and marginal revenue (MR) curves facing Musashi. Use the green rectangle labeled Total Revenue (triangle symbols) to compute total revenue at various prices along the demand curve. To see the area of the Total Revenue rectangle, click the shaded area with your mouse. (Note: You will not be graded on where you place the rectangle.) Total Revenue PRICE (Dollars per pole) MR Demand 0 10 1 2 3 4 5 6 7 8 9 QUANTITY (Thousands of trekking poles per month) On the following graph, use the green points (triangle symbol) to plot monthly total revenue at prices of $70.00, $60.00, $50.00, $40.00, $30.00, $20.00, and $10.00 per trekking pole. Be sure to use all of the points provided. Line segments will automatically connect the points. Then, consider the quantity of trekking poles at which Musashi's marginal revenue exactly equals zero. Place a grey point (star symbol) on the total revenue curve to indicate this quantity.

Answer 1

(1) TR = P x Q

Q (thousand)	P ($)	TR ($thousand)
1	70	70
2	60	120
3	50	150
4	40	160
5	30	150
6	20	120
7	10	70

(2) TR graph (Note that the 1st graph is only for the purpose of calculating TR at different prices, and you are not needed to shade the area of Revenue at different prices in this graph. Since it's interactive and I can't access it, I've manually calculated TR as above)

Total Revenue TOTAL REVENUE (Thousands of dollars per month) 0 10 1 2 3 4 5 6 7 8 9 QUANTITY (Thousands of trekking poles per month)

(3) MR is zero when TR is maximum, at Q = 4 (thousand), indicated above.

(4) If Q = 2 (thousand), Average revenue = Price = $60

(5) Musashi will produce in elastic region of demand curve, which lies to the left of the midpoint of demand curve (From Q = 0 to Q = 4,000). So, he will produce:

- No more than 4,000 poles