Question

Calculate and graph the profit maximizing price and quantity in output markets (monopoly)

ACME Electricity provides electricity service in a rural community as a monopolist with no competitors.

The following Table 1 shows price per unit and total costs associated with various amounts of electricity (in 100 kilowatts blocks) in the short-run:

Table 1:

Quantity of Electricity (in 100 kilowatt blocks)	Price (in dollars)	Total Costs (in dollars)
0		$50.00
1	$25.00	$60.00
2	$24.00	$69.00
3	$23.00	$77.00
4	$22.00	$84.00
5	$21.00	$90.50
6	$19.75	$96.75
7	$18.50	$102.75
8	$17.25	$108.50
9	$16.00	$114.75
10	$14.75	$121.25
11	$13.50	$128.00
12	$12.25	$135.00
13	$11.00	$142.25

Step 1

Using the information in Table 1, create a separate table that includes calculations of the following for each quantity of electricity (in 100 kilowatt blocks): Total Revenue, Marginal Revenue, Total Cost, Marginal Cost, Average Total Cost, and Profit.

The table can be computer-generated or created by hand. Be sure to appropriately label the table so the various costs, revenues, and profit can be identified. Round off to two decimal places for the dollar values.

Step 2

Using Table 1 and the table you created in Step 1 for this section, create one graph that contains the following curves: Marginal Revenue, Demand, Average Revenue, Marginal Cost, and Average Total Cost.

Label the vertical axis “Price, Revenue, and Cost (in dollars)” and the horizontal axis “Quantity of Electricity (in 100 kilowatt blocks)”. Label each of the five curves on the graph. The graph can be computer-generated or created by hand. Indicate the profit maximizing quantity and price in this graph. Indicate the amount of profit earned by the company at the profit maximizing quantity by shading the relevant area on the graph.

Answer 1