Question

Please refer to the following incomplete data describing costs and revenues for a monopolistic firm. Assuming that this firm wants to maximize profits, which of the following most accurately describes the price should it charge for this good? Output Price Total Revenue Marginal Revenue Total Cost Marginal Cost Average Total Cost 0 $100 $0 na $50 na na 1 $90 $90 $90 $65 $15 ? 2 $80 $160 ? $75 ? $38 3 $70 $210 ? $95 $20 $32 4 $60 $240 $30 $125 ? $31 5 $50 $250 $10 $175 ? ? 6 $40 $240 -$10 $265 $90 $44 7 $30 $210 ? $415 $150 $59 $30 $50 Less than $30 more than $50

Answer 1

Total revenue = TR

Marginal revenue = MR

Total cost = TC

Marginal cost = MC

Average total cost = ATC

AS per the detail, the table is set below:

Output	Price	TR	MR	TC	MC	ATC
0	100	0	NA	50	NA	NA
1	90	90	90	65	15	? (1)
2	80	160	? (2)	75	? (3)	38
3	70	210	? (4)	95	20	32
4	60	240	30	125	? (5)	31
5	50	250	10	175	? (6)	? (7)
6	40	240	-10	265	90	44
7	30	210	? (8)	415	150	59

Now, all “?” are to be calculated as below:

(1). ATC = TC of 1 / Output = 65 / 1 = 65

(2). MR = TR of 2 – TR of 1 = 160 – 90 = 70

(3). MC = TC of 2 – TC of 1 = 75 – 65 = 10

(4). MR = TR of 3 – TR of 2 = 210 – 160 = 50

(5). MC = TC of 4 – TC of 3 = 125 – 95 = 30

(6). MC = TC of 5 – TC of 4 = 175 – 125 = 50

(7). ATC = TC of 5 / Output = 175 / 5 = 35

(8). MR = TR of 7 – TR of 6 = 210 – 240 = - 30

Now, these are placed in the table again as below:

Output	Price	TR	MR	TC	MC	ATC
0	100	0	NA	50	NA	NA
1	90	90	90	65	15	? (1) = 65
2	80	160	? (2) = 70	75	? (3) = 10	38
3	70	210	? (4) = 50	95	20	32
4	60	240	30	125	? (5) = 30	31
5	50	250	10	175	? (6) = 50	? (7) = 35
6	40	240	-10	265	90	44
7	30	210	? (8) = - 30	415	150	59

Since this is a monopolistic firm, profit should be the maximum as per the condition below:

MR = MC

It happens at 4 output, where (MR = MC = 30). Therefore, the corresponding price is $60 on the price column.

Answer: more than $50.