Question

The table below gives you information on the revenue and cost structures of the Vaca family dairy farm. The farm is a monopolist in the local market. How does the farm decide the number of gallons of milk to produce and the market price per gallon to charge? 1. In column 6, identify which of the 2 effects dominate as the quantity of output is increased: Price or Output. Assume that there is no fixed cost, and that the marginal cost is constant. 1 2 6 9 10 Quantity (Q) Price (P) 3 Total Revenue (TR) 4 5 Average Marginal Revenue Revenue (AR) (MR) Dominating effect? 7 Marginal Cost (MC) 8 Total Cost (TC) Profit Change in Profit 0 $11 1 gal. 10 $3 2 9 $3 3 3 8 $3 4 7 $3 5 5 6 $3 09 5 $3 7 4. $3 8 3 $3 2. What general rule can the farm use to identify the profit maximizing quantity? How does the farm then decide the market price?

Answer 1

1 2 3 4. 5 6 8 PXQ ( g 10 Quantity of Painel P) +Revenue (TR) AR-P MR TRN-TRAI TR Dombratinge ffee Marginal Motif Ticost crot bother Profet SU PATC O TR-TC Igal. 10 10 monopolya 10 - 10 2 9 18 9 83 monopolys Ar falls by $14 mR by 82. $3 3 53571 8 3 3/ वा 8 ® 24 6 प 83 6 b. b 17 " 7 h h 2321 43 1254 53 5 6 30 6 2 10 53 Los 6 5 30 IC 0 । 43 2 43 इ2 0 53 E 525 532-4. 7 b b b 53 Heroe, MR becomes negative $3 53 -2 ६ 3 ht 3 -4

1 2 3 4. 5 6 8 PXQ ( g 10 Quantity of Painel P) +Revenue (TR) AR-P MR TRN-TRAI TR Dombratinge ffee Marginal Motif Ticost crot bother Profet SU PATC O TR-TC Igal. 10 10 monopolya 10 - 10 2 9 18 9 83 monopolys Ar falls by $14 mR by 82. $3 3 53571 8 3 3/ वा 8 ® 24 6 प 83 6 b. b 17 " 7 h h 2321 43 1254 53 5 6 30 6 2 10 53 Los 6 5 30 IC 0 । 43 2 43 इ2 0 53 E 525 532-4. 7 b b b 53 Heroe, MR becomes negative $3 53 -2 ६ 3 ht 3 -4