Question

3. Total and average revenue of a monopolist Аа аа Suppose that Manuel Stein is the only seller of kumquats in a small town. The following graph shows the demand and marginal revenue (MR) curves facing Manuel. You can use the red rectangle labeled Total Revenue (cross symbols) to compute total revenue at various prices along the demand curve. To see the area of the Total Revenue rectangle, scroll over the shaded area with your mouse. You will not be graded on where you place the rectangle. PRICE (Dollars per basket) Demand 8 10 12 14 16 18 20 QUANTITY (Thousands of basketsper yearl Help Clear All On the following graph, use the green points (triangle symbol) to plot annual total revenue at prices of $7, $6, $5, $4, $3, $2, and $1 per basket of kumquats. Be sure to use all of the points provided. Line segments will automatically connect the points. automatically connect the points. Then, consider the quantity of kumquats at which Manuel Stein's marginal revenue exactly equals zero. Place a grey point (star symbol) on the total revenue curve to indicate this quantity. Drop lines will automatically extend to both axes. TOTAL REVENUE (Thousands of dollars per year) Total Revenue

Answer 1

Prices Collars pes Basket DEMAND ik 2 4 6 S lo 12 14 16 18 20 U basket QUANTITY C Thou sands og Baskets per year) 407 I'mR=o Total Revenue al prices 367 at Oly=8000 $1 = [TR= 7, 8) +7X2=514 $ 6 » TR= $ x 4= $7 $5 => TR= $5x6= $130 $ + = TR= $ x 8= $32. $3 → TR = $3x10 =$80 $2 >> TK = $2x12=24 8] = TR = 81 x 1 = $14 TOTAL REVENUE = MRED 0 2 4 6 8 10 12 14 16 18 20 At Qty = 8000, MR=0 QUANTITY

of manuel sells 10,000 baskets at the highes consumers are willing to pay according to price he highest 2 weia basket cerve, his average og to pay according to the demand will be.$3 ]pes beste Ans: at consumers are willing to buy 10,00 at | $ 37 ng to buy 10,000 basket FR-E9X 3 = $20 TR= [0,000 10,000 x $ 3=$30,00 AR= TR = 30,000 = $3 10,000 Average Revenue per basket will be $3. It Destion elastic portion monopolist opelates on => y a mono poly produces, then it will: Ans Always operate on the elastic portion gi Reason:- Because when monopolist operates o I clemand curre. It is petit - maximizing. But on inelostic pestion, it is not profit maximizing. When the demand curve is in elastic, a seise in qty means a pooportionally larga fall ein prices. Due to which Total Revenue falls significantly But when clem and curve i elastic, rise in aty means relatively small fall in price. Thus revenue rises.