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A monopoly faces the demand in the first two columns in the table below
A monopoly faces the demand in the first two columns in the table below. Remember that as opposed to the perfectly competitive firm, a monopolist can charge different prices depending on how much it produces. The firm also has $10 in fixed costs and the marginal costs listed in the table below. Recall: Total Revenue (TR) = PxQ Marginal Revenue (MR)= change in TR due to increasing output by one unit Marginal Profit = additional profit from producing an additional unit a. Fill in the blanks in the table below. = Total Profits Marginal Marginal Revenue (MR) Cost (MC) Marginal Profit MR - MC Output Price (P) Total (0) Revenue (TR) 0 $6.00 1 5.80 2 5.60 3 5.40 4 5.20 5.00 6 4.80 7 4.60 8 4.40 9 4.20 10 4.00 11 3.80 12 3.60 13 3.40 14 3.20 15 3.00 $1.10 1.00 0.90 0.80 0.70 0.80 0.90 1.00 1.10 1.20 1.30 1.40 1.50 1.60 1.70 b. The profit maximization rule for the monopoly is to produce the output level where MR = MC. Use this rule to decide which output level this bakery should produce to maximize profits. C. At the output level which maximizes profit, what are the maximum profits? What price should the firm set to maximize profits? Explain.
Expert Solution
| Output | Price | TR=P*Q | MR=dTR/dQ | MC | MR-MC | TC | Total Profits=TR-TC |
| 0 | 6 | 0 | 0 | -- | -- | -- | |
| 1 | 5.8 | 5.8 | 5.8-0/1-0=5.8 |
1.1 |
4.7 | 4.7 | 1.1 |
| 2 | 5.6 | 11.2 | 11.2-5.8/2-1=5.4 | 1 | 4.4 | 9.1 | 2.1 |
| 3 | 5.4 | 16.2 | 5 | 0.9 | 4.1 | 13.2 | 3 |
| 4 | 5.2 | 20.8 | 4.6 | 0.8 | 3.8 | 17 | 3.8 |
| 5 | 5 | 25 | 4.2 | 0.7 | 3.5 | 20.5 | 4.5 |
| 6 | 4.8 | 28.8 | 3.8 | 0.8 | 3 | 23.5 | 5.3 |
| 7 | 4.6 | 32.2 | 3.4 | 0.9 | 2.5 | 26 | 6.2 |
| 8 | 4.4 | 35.2 | 3 | 1 | 2 | 28 | 7.2 |
| 9 | 4.2 | 37.8 | 2.6 | 1.1 | 1.5 | 29.5 | 8.3 |
| 10 | 4 | 40 | 2.2 | 1.2 | 1 | 30.5 | 9.5 |
| 11 | 3.8 | 41.8 | 1.8 | 1.3 | 0.5 | 31 | 10.8 |
| 12 | 3.6 | 43.2 | 1.4 | 1.4 | 0 | 31 | 12.2 |
| 13 | 3.4 | 44.2 | 1 | 1.5 | -0.5 | 30.5 | 13.7 |
| 14 | 3.2 | 44.8 | 0.6 | 1.6 | -1 | 29.5 | 15.3 |
| 15 | 3 | 45 | 0.2 | 1.7 | -1.5 | 28 | 17 |
For total profits we need total costs and
MC=TCn-TCn-1
So, TC= Sum(MCi)
b. At Q=12 MR=MC or MR-MC=0, but profits are maximised
c.Maximum profits at Q=12 are 12.2
Price monopolist should charge will be 3.6 at Q=12 because at this price MR=MC and monopolist would get maximum profits.
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