Question

Assignment 1

Willy's Widget, a monopoly, faces the following demand schedule (sales in widgets per month):

Price	Quantity
80	0
75	10
70	20
65	30
60	40
55	50
50	60
45	70
40	80
35	90
30	100
25	110
20	120

Calculate marginal revenue over each interval in the schedule. If marginal cost is constant at $40 and fixed cost is $300, what is the profit maximizing level of output? What is the level of profit? Explain your answer using marginal cost and marginal revenue.

Repeat the exercise for MC = $18

Answer 1

Price	Quantity	MC=$40					TR	MR	MC=$18
		FC	VC	TC	MC	Profit			FC	VC	TC	MC	Profit
80	0	300	0	300		-300	0		300	0	300		-300
75	10	300	400	700	40	50	750	75	300	180	480	18	270
70	20	300	800	1100	40	300	1400	65	300	360	660	18	740
65	30	300	1200	1500	40	450	1950	55	300	540	840	18	1110
60	40	300	1600	1900	40	500	2400	45	300	720	1020	18	1380
55	50	300	2000	2300	40	450	2750	35	300	900	1200	18	1550
50	60	300	2400	2700	40	300	3000	25	300	1080	1380	18	1620
45	70	300	2800	3100	40	50	3150	15	300	1260	1560	18	1590
40	80	300	3200	3500	40	-300	3200	5	300	1440	1740	18	1460
35	90	300	3600	3900	40	-750	3150	-5	300	1620	1920	18	1230
30	100	300	4000	4300	40	-1300	3000	-15	300	1800	2100	18	900
25	110	300	4400	4700	40	-1950	2750	-25	300	1980	2280	18	470
20	120	300	4800	5100	40	-2700	2400	-35	300	2160	2460	18	-60

FC is equal to the total cost at the zero output level and the FC=$
TC=TVC+TFC
FC=TC-VC

VC=sum of MC

TR=P*Q

MR of n th unit=(TR of n units -TR of p units)/(n-p)...................n>p

profit=TR-TC
The firm produces at MR=MC or the closet lower MC

when MC=$40

Q=40 units, P=$60 and Profit=$500

When MC=$18

Q=60, P=$50, Profit=$1620