Question

Output	Price	Total Cost
0	$300	$250
1	275	260
2	250	290
3	225	350
4	200	500
5	175	680

Refer to the demand and cost data for a pure monopolist given in the table. If the monopolist perfectly price-discriminated and sold each unit of the product at the maximum price the buyer of that unit would be willing to pay, and if the monopolist maximized profits, then the total profit received would be

• $675.

• $450.

• $1,125.

• $325.

Answer 1

Ans: $325

Explanation:

Under monopoly market structure , the profit maximization condition is where marginal revenue equals marginal cost ( MR = MC ) or marginal revenue is greater than the marginal cost ( MR > MC).

In the following table , it is observed that the profit maximization condition ( MR > MC ) is fulfilled at the output level of 3 units.

Total Revenue = Price * Quantity

Marginal Revenue = Change in Total Revenue / Change in Quantity

Marginal Cost = Change in Total Cost / Change in Quantity

Profit / Loss = Total Revenue - Total Cost

Output	Price	Total Revenue	Marginal Revenue	Total cost	Marginal cost	Profit /Loss ($)
0	$300	$0	--	$250	--	-250
1	275	275	$275	260	$10	15
2	250	500	225	290	30	210
3	225	675	175	350	60	325
4	200	800	125	500	150	300
5	175	875	75	680	180	195