: Demand Schedule for Gasoline in Kelley, lA The table shows Kelley\'s demand sc
ID: 1126672 • Letter: #
Question
: Demand Schedule for Gasoline in Kelley, lA The table shows Kelley's demand schedule for gasoline. Assume the residents can't get gasoline anywhere else. Assume the town's gasoline seller(s) incurs a cost of $2 per gallon sold, with no fixed cost. Quantity (gallons) Price (dollars) Marginal Cost Total Cost Total Profits 50 100 150 250 300 350 400 You do not need to fill out the empty columns of the table. They are not graded and are only there to help you 73. Refer to Table 2. If the market is perfectly competitive, what is the equilibrium price? d. 74. Refer to Table 2. If the market is perfectly competitive, what is the equilbrium quantity? b. d. 75. Refer to Table 2. If the market is a monopoly, what price will the profit-maximizing monopolist charge? b. d. 76. Refer to Table 2. If the market is a monopoly, what quantity will the profit-maximiting monopolist produce? d. 77. Refer to Table 2. If the market is a monopoly, what will be the profit-maximizting monopolist's profits? b.Explanation / Answer
Perfectly competitive
If the market is perfectly competitive, the firms are price taker and therefore MR is equal to the market price P for all levels of output. These points imply that a perfectly competitive firm will maximize profit by producing output where P = MC. To solve the problem, we need to find our MR
And MR (i) = (TR (i) – TR (i-1)) / (Q (i) – Q (i-1))
And Total Revenue (TR) = P*Q
We can calculate fourth column in the table by multiplying first and second column
Q (gallons)
Price ($)
MC ($)
TR=P*Q
0
8
0
0
50
7
2
350
100
6
2
600
150
5
2
750
200
4
2
800
250
3
2
750
300
2
2
600
350
1
2
350
400
0
2
0
Now to calculate MR,
At Q= 50 and P = 7, MR = (350 – 0) / (50 – 0) = 7 and then drag the formula, we get the fifth column
Q (gallons)
Price ($)
MC ($)
TR=P*Q
MR
0
8
0
0
50
7
2
350
7
100
6
2
600
5
150
5
2
750
3
200
4
2
800
1
250
3
2
750
-1
300
2
2
600
-3
350
1
2
350
-5
400
0
2
0
-7
If the market is perfectly competitive, the firms are price taker and therefore MR is equal to the market price P for all levels of output. These points imply that a perfectly competitive firm will maximize profit by producing output where P = MC.
73. By looking at the table, P=MC is where Q =300 gallons
And equilibrium price =$2
74. By looking at the table, P=MC is where Q =300 gallons
Equilibrium Quantity = 300 gallons
Monopolist
Compare MR and MC in the above table,
Having found the Marginal Revenue, and knowing that the Marginal Cost is $2.00, we can see that if Q > 200, Marginal Revenue will fall below Marginal Cost.
We therefore have, since MR = MC at about 200 units of output, the result that a monopolist should produce 200 units of output.
At 200 units of output, the monopolist can charge $ 4 per gallons.
Monopoly REVENUE is therefore PQ = ($4) x 200 = $ 800
Monopoly COSTS will be VC = MC x Q = $ 2 x 200= $ 400.
Profit = Revenue - Costs = $800 - $400 = $ 400
Note that at any other level of output, profit will be less.
75. If the market is monopoly, price charged will be $4.
76. If the market is monopoly, quantity produced will be 200 units of gallons
77. if the market is monopoly, profit will be $ 400
Q (gallons)
Price ($)
MC ($)
TR=P*Q
0
8
0
0
50
7
2
350
100
6
2
600
150
5
2
750
200
4
2
800
250
3
2
750
300
2
2
600
350
1
2
350
400
0
2
0
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