Question

Q1 The data below is for a firm operating in a monopoly situation. [6] Price $ Quantity Total Revenues Marginal Revenues Total Costs Average Total Cost $ Marginal Costs 72 15 8 74 14 9 78 13 10 R4 12 11 92 11 12 102 10 13 126 9 164 8 15 a) Assume the monopolist is not regulated, and charges a single price to customers. Determine the Profit Profit Maximizing Quantity Profit Maximizing Price b) Assume the monopolist is now regulated to a fair return price. Determine the Profit Maximizing Price Profit Maximizing Quantity Profit

Answer 1

Price $	Quantity	Total Revenue $	Marginal revenue $	Total Cost $	Average total cost $	Marginal cost $	Profit $
15	8	120 (15*8)	-	72	9.0 (72/8)		48
14	9	126	6 (126-120)/(9-8)	74	8.2	2 (74-72)/(9-8)	52 (126-74)
13	10	130	4	78	7.8	4	52
12	11	132	2	84	7.6	6	48
11	12	132	0	92	7.7	8	40
10	13	130	-2	102	7.8	10	28
9	14	126	-4	126	9.0	24	0
8	15	120	-6	164	10.9	38	-44

Total Revenue is found by multiplying Quantity with Price

Marginal revenue = Change in Total Revenue / Change in Quantity

Average total cost = Total Cost / Quantity

Marginal cost = Change in Total Cost / Change in Quantity

Profit = Total Revenue - Total Cost

a) Now when the monopolist is not regulated, and charges a single price to customers. The profit maximizing price is when Marginal Revenue is equal to Marginal Cost. Thus price is $13, Quantity is 10 and Profit is $52.

b) Now the monopolist is regulated at a fair return price. In this the price should equal the average total cost curve. Thus the Price is $9, Quantity is 14 and Profit is 0.