Question

Question 1 Instructions: Show all steps for each part of the question below. The accompanying diagram shows the demand, marginal revenue, and marginal cost of a monopolist. Below the graph is the market demand curve.

Answer 1

a.

Price	Quantity	Total Revenue	Average Revenue
80	10	800	80
70	20	1400	70
60	30	1800	60
50	40	2000	50
40	50	2000	40
30	60	1800	30
20	700	14000	200
10	8	80	10

b.

The profit-maximizing condition for the monopolist is the following:

MR = MC.

As seen in the diagram below, this condition is met at Output level = 30 because at this point, the MC curve intersects the MR curve and both are equal. Therefore, the profit-maximizing level of output = 30 units

c.

As the profit-maximizing level of output = 30 units, the profit-maximizing level of Price = $60. This is because at Q = 30, the market price charged by the monopolist intersects the demand curve, AR curve at price 60. Under monopoly, the price is always greater than the average cost. This allows the monopolist to earn a higher profits than perfect competition.

d. If the firm's product were sold at the profit-maximizing output level, then the equilibrium price would be $40 and the equilibrium output would be 50 units.

The profit-maximizing level of output for the price-taking firm occurs when P = MC = AR.

However, for the monopolist, the equilibrium condition is MC = MR and MC cuts MR from below.

ь. РТ , MC p = 60+ -- MR = MC EMR AR AKMR KAR at 30 207 MR pl . do MC p=40 50 MR