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?