ECON 203 Ch. 24- Monopoly Handout PROBLEM 1: Refer to the table below, which represents the demand schedule and the total cost schedule of a monopolist, to answer the following questions: Quantity Price 0 1 2 3 4 5 $20 18 16 14 12 10 Total revenue 0 18 32 42 48 50 Marginal revenue -. 18 14 10 6 2 Total Cost $15 21 27 33 39 45 Marginal cost 6 6 6 6 6 1. What is the profit-maximizing output of the monopolist? profit output maximaztion is MR=MC=6 at Q=4 2. What price would the monopolist charge at the profit-maximizing output? the price=12 3. What is marginal revenue at the profit-maximizing output? MR=6 4. What is marginal cost at the profit -maximizing output? MC=6 5. What is the monopolist's level of profit at this output? profit=tr-tc=48-39=9 6. What is the monopolist's fixed cost? PROBLEM 2: Refer to the figure below, which depicts the short run cost and revenue conditions of a pure monopoly, to answer the following questions: 1. What is the profit-maximizing output of the monopoly? MR=MC. Q=48 2. What price would the monopoly charge at the profit-maximizing output? Is the intersection of MR and MC where is the price= 11 3. What is marginal revenue at the profit-maximizing output? MR=7 4. What is the monopolist’s level of profit at this output? TR=P.Q=528 TC=ATC. Q=288 profit=TR-TC=240 5. What will happen to monopoly profit in the long run? Depending on the consequences we would make some profit 6. If this monopoly were divided into many small firms producing identical products, how much output would these perfectly competitive firms produce in total in the short run, and what price would prevail in the long run?