Question

In: Economics

This question examines the pure monopoly market for wonky widgets.

PURE MONOPOLY

IN-CLASS WORKSHEET 1

This question examines the pure monopoly market for wonky widgets. You will use a market demand curve to identify the maximum willingness to pay by consumers for different quantities of wonky widgets, the total revenue associated with selling a particular quantity, and the marginal revenue earned from each unit.

Wonky Widgets are produced and sold by a single firm, Walter’s Wonky Widgets. The monopolist faces a market demand characterized by the function:

P = 10 − 2Q

where Q is the number of wonky widgets that the monopolist produces and sells, and P represents consumers’ maximum willingness to pay for a particular quantity. The table below will help you identify and organize different relationships between quantity, price, total revenue, and marginal revenue.

Quantity

(widgets)

Price

(dollars)

Total Revenue

(dollars)

Marginal Revenue

(dollars)

0



-----

1




2

$6



3


$12

$0

4

$2



5



−8

Task 1: In the table above, identify consumers’ maximum willingness to pay for each quantity of widgets and fill in all blank cells in the “Price” column. You can find these values by plugging different quantities into the demand function above.

Task 2: In the table above, identify the total revenue that Walter’s Wonky Widgets earns when it produces and sells each quantity of widgets and fill in all blank cells in the “Total Revenue” column. Hint: Remember that Total Revenue = Price x Quantity.

Task 3: In the table above, identify the marginal revenue that Walter’s Wonky Widgets earns when it produces and sells each quantity of widgets and fill in all blank cells in the “Marginal Revenue” column. Hint: Remember that marginal revenue is the change in total revenue associated with producing each additional unit of output.

Solutions

Expert Solution

Quantity price total revenue marginal revenue
0 $10 $0 -
1 $8 $8 $8
2 $6 $12 $4
3 $4 $12 $0
4 $2 $8 $-4
5 $0 $0 $-8

Price is taken out be P = 10-2Q formula.

Total revenue is equal to price*Quantity.

Marginal revenue is equal to change in total revenue/Change in quantity.

Rahul Sunny answered 2 years ago
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