antity demanded a 3. In the following table are cost and demand data for a pure
ID: 1152238 • Letter: A
Question
antity demanded a 3. In the following table are cost and demand data for a pure monopolist Quantity demanded Marginal Average Marginal cost cost Price revenue $17.50 0 16.00 $16.00$24.00 $24.00 14.50 13.00 13.00 1.50 10.00 15.00 11.67 7.0010.50 10.00 9.75 9.64 9.34 9.36 6.00 5.00 7.00 8.00 8.50 9.00 9.25 9.50 2 10.00 4 4.00 1.00 5 6 8.50 7 7.002.00 5.50 5.00 8 9 400 -8.00 a. An unregulated monopolist would produce units of this product, sell it at a price of$ and receive a total profit of $ . b. If this monopolist were regulated and the maximum price it could charge were set equal to marginal cost, it would produce units of a product, sell it at a price of $ , and receive a total profit of $ Such regulation would either (bankrupt, subsidize ulating government the firm or require that the reg- the firmExplanation / Answer
A. In monopoly marginal revenue is set equal to marginal cost in order to maximize profit therefore the firm would set P at the point where MR = MC
An unregulated monopolist would produce 4 units of output sell at a price of $ 11.5 per unit and receive a profit of $ 4
? = TR - TC = PQ - ATC*Q
? = 11.5×4 - 10.5×4
? = $ 4
b. Under perfect competition the marginal cost is set equal to price.
If the monopolist where regulated and the maximum price it could charge were set equal to marginal cost, it would produce 6 units of a product, charge a price of $ 8.5 per unit and receive a total profit of $ - 7.5 (=8.5×6-9.75×6). Such Regulation and either bankrupt the firm or require that regulating government subsidize the firm.
c. Fair return price is that where Average cost is equal to price.
If the monopolist to were a regulated and allowed to charge a fair return price it would produce 5 units of product, and charge a price of $ 10 per unit and receive a profit of $ 0.
d. The most efficient allocation of resources results from b.(Perfect Market)
The least efficient allocation results from a. (Monopoly)
In practice government with probably select situation c.(Fair return price)
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