Question

Due Sunday

Course Objectives 7a, 7b, 7c, 8a, 8b

Homework Meaning: We have spent much of the class looking at the advantages of the market system: this was essentially the section on perfect competition as well as supply and demand. Over the next 2 weeks, we will look at some of the disadvantages of the market system. This week, we look at what happens when markets are less than competitive.

1. Fill in the following table for a monopoly.

Q	P	TR	TC	Profit	MR	MC
10	$20		$150
11	19		155
12	18		161
13	17		170
14	16			$39
15	15		210

a. What is the highest profit possible?

b. What is the profit maximizing level of output?

c. What is the profit maximizing price?                         

Answer 1

total revenue =P*Q

TR(10)=10*20=200

TR(11)=11*19=209 and so on

Profit=TR-TC

Profit(10)=200-150=50

Profit(11)=209-155=54 and so on

TC=TR-Profit

TC(14)=224-39=185

MR(n)=(TR(n)-TR(p))/(n-p)
MR(n)= MR of n th unit of output
TR(n)=TR of n units of output
TR(p)=TR of p units of output
it is true for n>p
MR(11)=(209-200)/(11-10)=9

MR(12)=(216-209)/(12-11)=7 and so on

MC(n)=(TC(n)-TC(p))/(n-p)
MC(n)=marginal cost of n th unit
TC(n)=Total cost of n units of output
TC(p)=Total cost of p unit of output
here, n>p.
MC(11)=(155-150)/(11-10)=5

MC(12)=(161-155)/(12-11)=6 and so on

Q	P	TR	TC	Profit	MR	MC
10	20	200	150	50
11	19	209	155	54	9	5
12	18	216	161	55	7	6
13	17	221	170	51	5	9
14	16	224	185	39	3	15
15	15	225	210	15	1	25

a)

the profit is maximum at MR=MC or the nearest lower MC

MC=6 and MR=7

Q=12 units and P=$18

The maximum possible profit is $55

b)

the profit is maximum at MR=MC or the nearest lower MC

MC=6 and MR=7

Q=12 units

the maximum profit level of output is 12 units

c)

At the profit-maximizing level of output, the profit is $18