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Dreher’s Designer Shirt Company, a monopolist, can engage in perfect price discrimination
Dreher’s Designer Shirt Company, a monopolist, can engage in perfect price discrimination. Using the following table, answer the questions below: (Please show how you arrived at your answers.)
Quantity Demanded Price
- $170
- $160
- $150
- $140
- $130
- $120
- $110
- $100
- $95
- What is the marginal revenue for the firm from selling the 5th shirt?
- If marginal cost is $100, how many shirts will be sold by the firm?
- Find the total revenue for the firm when 3 shirts are sold.
- What would be the total revenue for a single price monopoly when 3 shirts are sold?
- How much is the revenue difference between the two firms when 3 shirts are sold?
Expert Solution
1. Marginal revenue from selling 5th shirt = $130.
2. In monopoly firm can sell till its MR becomes equal to MC which in this case in $100.
Therefore at 8th unit MR becomes equal to MC at $100, hence till 8th unit monopolist can produce.
3. Total revenue when 3 shirts are sold = 170 + 160 + 150 => $ 480.
4. For single price monopolist will sell all output at single price, hence its total revenue = 3 * 150 => $ 450.
5. Revenue difference = 480 - 450 => $ 30.
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