4. The following are the demand and total cost schedules for the Normal Telephon
ID: 1147784 • Letter: 4
Question
4. The following are the demand and total cost schedules for the Normal Telephone Company, a local monopoly.
Output
(# of calls)
Price
(dollars per call)
Total Cost
(dollars)
0
.12
0
50,000
.11
2,000
100,000
.10
6,500
150,000
.09
11,000
200,000
.08
16,000
250,000
.07
23,000
300,000
.05
32,000
How much output will Normal Telephone company "produce," and what price will it charge?
Will it earn a profit? How much? (Hint: You first have to compute its MR and MC schedules. If you have two answers, choose the one with the lowest price.)
Output
(# of calls)
Price
(dollars per call)
Total Cost
(dollars)
0
.12
0
50,000
.11
2,000
100,000
.10
6,500
150,000
.09
11,000
200,000
.08
16,000
250,000
.07
23,000
300,000
.05
32,000
Explanation / Answer
Output
Price
Total Cost
(# of calls)
(dollars per call)
(dollars)
TR
MR
MC
Profit
0
0.12
0
0
50,000
0.11
2,000
5500
0.11
0.04
3,500
1,00,000
0.1
6,500
10000
0.09
0.09
3,500
1,50,000
0.09
11,000
13500
0.07
0.09
2,500
2,00,000
0.08
16,000
16000
0.05
0.1
0
2,50,000
0.07
23,000
17500
0.03
0.14
-5,500
3,00,000
0.05
32,000
15000
-0.05
0.18
-17,000
From the above table, it would produce an output where MC=MR
It would produce an output of 1,00,000 # calls
It will charge the price of 0.1 dollars per call
Yes it would earn a profit of $3500
Output
Price
Total Cost
(# of calls)
(dollars per call)
(dollars)
TR
MR
MC
Profit
0
0.12
0
0
50,000
0.11
2,000
5500
0.11
0.04
3,500
1,00,000
0.1
6,500
10000
0.09
0.09
3,500
1,50,000
0.09
11,000
13500
0.07
0.09
2,500
2,00,000
0.08
16,000
16000
0.05
0.1
0
2,50,000
0.07
23,000
17500
0.03
0.14
-5,500
3,00,000
0.05
32,000
15000
-0.05
0.18
-17,000
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