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Mark's Day Spa is a single-price monopoly
Mark's Day Spa is a single-price monopoly. The table shows the demand schedule for Mark's day Spa (columns 1 and 2) and the firm's total cost schedule (columns 2 and 3)
| Price (dollars per treatment) | Quantity (treatments per hour) | Total cost (dollars per hour) |
| 10 | 0 | 1 |
| 9 | 1 | 2 |
| 8 | 2 | 4 |
| 7 | 3 | 7 |
| 6 | 4 | 12 |
| 5 | 5 | 18 |
What is Mark's profit-maximizing output, price, and economic profit?
Mark's profit-maximizing output is _____ treatments an hour.
Mark's profit-maximizing price is $ _____ a treatment.
When Mark's produces the profit-maximizing output and charges the profit-maximizing price, economic profit is $ _____ an hour.
Expert Solution
| Price (dollars per treatment) | Quantity (treatments per hour) | Total cost (dollars per hour) | Marginal Cost | Total Revenue | Profit = TR-TC |
| 10 | 0 | 1 | - | 0 | -1 |
| 9 | 1 | 2 | 1 | 9 | 7 |
| 8 | 2 | 4 | 2 | 16 | 12 |
| 7 | 3 | 7 | 3 | 21 | 14 |
| 6 | 4 | 12 | 5 | 24 | 12 |
| 5 | 5 | 18 | 6 | 25 | 7 |
It is evident from the above table that the profit is maximum for 3 treatments per hour.Hence,
- Mark's profit-maximizing output is 3 treatments an hour.
- Mark's profit-maximizing price is $7 a treatment.
- When Mark's produces the profit-maximizing output and charges the profit-maximizing price, economic profit is $14 an hour.
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