NAME SECTION, PRINT LAST NAME, FIRST NAME MONOPOLY Tony is the only caterer in t

Question

NAME SECTION, PRINT LAST NAME, FIRST NAME MONOPOLY Tony is the only caterer in the local market. Use the information in the table below to calculate total revenue (TR), marginal revenue (MR), total cost (TC), and marginal cost (MC), assuming Tony is not able to price discriminate. Answer questions 1 through 10 based on the data. $150 $1,200 $1,000 $800 $600 $400 0 $550 $1,050 $1550 $2,050 How many parties will Tony cater if his goal is to maximize total revenue? Q = 1)- The marginal revenue of catering the 2) be profitable to produce this quantity Assume Tony's goal is to maximize profit, not revenue. If Tony caters one party, profit is equal to 3) Sif Tony caters two parties, profit is equal to 4) $ marginal revenue of the second party is greater than the 5) caters a third party, marginal revenue is 6) Sand marginal cost is 7) S so profit falls to 8) S The profit-maximizing choice for Tony is to set the price per party equal to 9) $ cater 10) parties each night. party is negative, so it would never since the If Tony and

Explanation / Answer

Price $ Quantity Total Revenue $ Marginal Revenue $ Total Costs $ Marginal cost $ Monopoly Profits $ 1200 0 0 - 150 - -150 1000 1 1000 1000 550 400 450 800 2 1600 600 1050 500 550 600 3 1800 200 1550 500 250 400 4 1600 -200 2050 500 -450 The first and second columns give the quantity demanded and price willing to be paid. The third column is the price times quantity which gives the revenue. The fourth column is the marginal (additional) revenue for each level of output. The fifth column is the total cost for given output. The sixth column is the marginal (additional) cost for each level of output. The seventh column is monopoly profits which is TR-TC 1. Tony will cater to 3 parties if he seeks to maximize revenue, since this gives the highest revenue ($1800). 2. The MR for catering 4 parties is negative. 3. For one party profit is $450, for two parties profit is $550 4. If Tony caters to 1 party, profit is $450, for two parties profit is $550, since MR of the 2nd party is greater than the third party. The MR for third party is $200, the marginal cost is $500 and profit is $250 5.The profits are maximized when Tony caters to 2 parties at a price of $800, because MR is closest to MC.

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