Problem 10-02 (Algo) (a) Complete the following table: Instructions: Enter your

Question

Problem 10-02 (Algo)

(a) Complete the following table:

Instructions: Enter your responses rounded to the nearest whole number. Indicate a negative response with a (-) negative sign.

(b) At what rate of output does marginal revenue turn negative?



(c) If marginal cost is constant at $20, what is the profit-maximizing rate of output?



(d) Assuming a firm has monopoly power, what price should be charged at that rate of output?

$

Price $26 $23 $20 $17 $14 $11 $9 $5 Quantity demanded    1    2    3    4    5 6 7   8 Marginal revenue $ $ $ $ $ $ $ $

Explanation / Answer

a) From the table shown in para b), we find that marginal revenue is negative when quantity demanded is 6 units.

b)We can show the calculation in the following table:

Quantity demanded

Price

Total Revenue

Marginal Revenue

1

$26

$26

-

2

$23

$46

$20

3

$20

$60

$14

4

$17

$68

$8

5

$14

$70

$2

6

$11

$66

-$4

7

$9

$63

-$3

8

$5

$40

-$23

From the above table, it is clear that profit-maximizing output of the firm is 2 units where marginal revenue = marginal cost= $20

c) If the firm is a monopoly then it will charge a price such that marginal revenue = 0 At profit maximizing output 2, the price charged is $26 which should be $13 so that marginal revenue =0

Quantity demanded

Price

Total Revenue

Marginal Revenue

1

$26

$26

-

2

$23

$46

$20

3

$20

$60

$14

4

$17

$68

$8

5

$14

$70

$2

6

$11

$66

-$4

7

$9

$63

-$3

8

$5

$40

-$23

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