Question

Chapter 10 Pure Monopoly Assignment

1. What are the major characteristics of pure monopoly?

2. In the following table are demand and cost data for a pure monopolist. Complete the table by filling in the columns for total revenue, marginal revenue, and marginal cost.

Quantity	Price	Total revenue	Marginal revenue	Total cost	Marginal cost
0	$34	$	XXXXXXX	$   20	XXXXXXX
1	32		$	36	$
2	30			46
3	28			50
4	26			54
5	24			56
6	22			64
7	20			80
8	18			100
9	16			128
10	14			160

Answer these three questions:

1. What output will the monopolist produce?

(b) What price will the monopolist charge?

(c) What total profit will the monopolist receive at the profit-maximizing level of output?

Answer 1

1)

Characteristics of pure monopoly:
One firm is the sole producer of a product. Firm is price setter.
No substitutes of the products are available.
There are barriers for entry of other firms to the market to prevent competition.
Producer can decide the quantity he wants to produce and then set the price accordingly in the market.

2)

Q	P	TR (P*Q)	MR (TRn - TRn-1)	TC	MC (TCn - TCn-1)
0	34	0	-	20	-
1	32	1*32=32	32-0=32	36	36-20=16
2	30	2*30=60	60-32=28	46	46-36=10
3	28	3*28=84	84-60=24	50	50-46=4
4	26	4*26=104	104-84=20	54	54-50=4
5	24	5*24=120	120-104=16	56	56-54=2
6	22	6*22=132	132-120=12	64	64-56=8
7	20	7*20=140	140-132=8	80	80-64=16
8	18	8*18=144	144-140=4	100	100-80=20
9	16	9*16=144	144-144=0	128	128-100=28
10	14	10*14=140	140-144= -4	160	160-128=32

a)
Monopolist will produce up to the point where MR>MC. From the table we can see that till quantity 6 MC<MR. Therefore, monopolist will produce quantity 6.

b)
From the table we can see that the price when Q=6 is $22. So, monopolist will charge price = $22.

c)
Profit = TR - TC
Profit_Q=6,P=22 = TR_Q=6 - TC_Q=6 = 132 - 64 = $68