Question

(ai) Fill in the blanks in the following table for a monopoly Marginal Total Marginal Profit ntity Price Total Re of Output Cost venue RevenueCost 20 18.5 17 15.5 14 12.5 16 20 25 4 42 53 68 9.5 (6 marks) (ii) The profit-maximizing monopoly produces units of output at the price of S corresponding profit is equal to $ The (ii) Based on the information in the table above, the socially optimal level of output is equal to units and the monopoly does/ does not (circle the answer) produce at this level. State the condition at which the socially optimal level of output is achieved. (2 marks)

Answer 1

Q	P	TR	MR	TC	MC	Profit
1	20	20	20	16	16	4
2	18.5	37	17	20	4	17
3	17	51	14	25	5	26
4	15.5	62	11	33	8	29
5	14	70	8	42	9	28
6	12.5	75	5	53	11	22
7	11	77	2	68	15	9
8	9.5	76	-1	88	20	-12

TR=P*Q

MR=Change in TR

MC=change in TC

Profit = TR-TC

ii) The profit-maximizing output will be where MC=MR

Q=4 Units

P=15.5

Profit = 29

iii) The socially optimal quantity will be where P=MC at Q=7 units

A monopoly does not produce this level of output

This is achieved when the goods and services are distributed in an optimal manner and when the price that the firm sets will be equal to the marginal cost where the MC curve intersects the demand curve.