Question

In: Economics

. A single-price monopolist has the schedules given in the table below. Quantity (units) Price (MYR)...

. A single-price monopolist has the schedules given in the table below.

Quantity

(units)

Price

(MYR)

Marginal revenue

(MYR)

Marginal cost

(MYR)

1

22

20

6

2

20

16

8

3

18

12

12

4

16

8

18

5

14

4

28

a. Determine the profit-maximizing level of output, price as well as the amount of profit or loss at this level. Clarify how you obtain the answer.

…………………………………………………………………………………………………..

…………………………………………………………………………………………………..

…………………………………………………………………………………………………..

b. Compare between the perfect competition and monopoly market structure.

…………………………………………………………………………………………………..

…………………………………………………………………………………………………..

…………………………………………………………………………………………………..

Solutions

Expert Solution

The given table can be expanded to include Total Revenue and Total Cost.

Quantity

(units)

Price

(MYR)

Marginal revenue

(MYR)

Total Revenue

Marginal cost

(MYR)

Total Cost

1

22

20

20

6

6

2

20

16

36

8

14

3

18

12

48

12

26

4

16

8

56

18

44

5

14

4

60

28

72

TR is found by the summation of MR at each level of output; TC is found by the summation of MC at each level of output

---

a) Profit maximizing level of output is where MR = MC

From the table, this is where Q = 3 units and P = MYR 18

At this level, Profits = TR - TC

Profit = 48 - 26 = MYR 22

---

b) The main points of difference are:

Perfect Competition Monopoly
Number of buyers and sellers Large number of buyers and sellers Many buyers, and a single seller
Price determination Price decided by market, everyone is a price taker Seller is the price maker
Entry and exit Free entry and free exit High entry barriers, costly to exit
Economic Profits Not possible Possible till the firm has market power
P and MC P = MC P > MC
Efficiency Outcome is efficient Outcome is inefficient
MR Horizontal Downward sloping

Perfect competition is an efficient market, because it leads to the society's maximum welfare. This doesn't happen in monopoly. The monopoly firm can charge any price, and thus offer a lower quantity for sale. The monopoly firm is able to make economic profits, and it also attempts to raise the entry barriers.


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