Question

Given the data shown in the table for​ a​ monopolist:

Output	Price	Total Cost	MC	Total Revenue	Marginal Revenue
1	10	10
2	9	11
3	8	13
4	7	16
5	6	20
6	5	25

1. Complete the​ table​ -- calculate​ ​MC, Total Revenue and MR for all output levels.

2. When the output level is 6​ units​: ​  

a. Should the​ monopolist​ increase, decrease or leave​ output​ unchanged? ​ 

b. Is MR​ greater​ than,​ less​ than, or equal​ to​ MC?

3. Identify the profit maximizing P and Q.

4. What is the​ ​per-unit profit when​ Q​ =​ 2?

5. What is the total profit at​ the​ profit-maximizing​ solution?

6. Suppose barriers to entry overtime​ significantly​ decrease. Will the profit maximizing price​ increase, decrease or stay the​ same?

Answer 1

Answers for Question

Output	Price	Total Cost	MC	Total Revenue	Marginal Revenue	Profit	Profit/Unit
1	10	10		10		0	0.0
2	9	11	1	18	8	7	3.5
3	8	13	2	24	6	11	3.7
4	7	16	3	28	4	12	3.0
5	6	20	4	30	2	10	2.0
6	5	25	5	30	0	5	0.8

When the output level is 6 units the firm should DECREASE output in order to maximize profits. At Q=6, the firm's marginal revenue (MR=0) is less than the marginal cost (MC=5). This means that the 6th unit cost the firm $5 but adds nothing to the revenue. It would not be wise to produce this unit of output. The MR=0 is less than MC=5

Profit maximizing output at the intersection of MR and MC curves of MR being just greater than the MC, Q*= 4 units and P* = $7.

The​ ​per-unit profit when​ Q​ =​ 2 is $3.5

The total profit at​ the​ profit-maximizing ​solution is $12.

If the barriers to entry reduce or decrease the price would converge to the minimum of average cost which is $4. That means price will fall to $4.