Quantity Demanded 0 1. Consider the monopolist that faces the demand schedule sh

Question

Quantity Demanded 0 1. Consider the monopolist that faces the demand schedule shown at the right and faces a constant marginal cost of $6 per unit. [10 points) Price $12 $11 $10 a. How many units of output should the monopoly produce to maximize profit? 12 16 $7 $6 $5 $4 20 24 28 b. What price should the monopolist charge to maximize profit? 2. Suppose a duopoly faced the demand schedule above, and the two firms colluided. (10 points) a. How many units of output should each firm produce? b. How much profit would each firm earn? Suppose that, in the duopoly cartel formed in question #2 above, one of the firms produced 4 units more than the cartel agreed to produce. (10 points) 3.

Explanation / Answer

1.

A

Monopoly will produce the output level, where MR=MC

Here, MC = $6

On this basis, monopoly firm will produce 8 units of output, because after this level of output, MC will be greater than the Marginal revenue.

B.

Price to be charged by the monopoly = $10 per unit

2.

A

Each firm should produce = 8/2 = 4 units

B

Profit for each firm = 10*4 – 6*4 = $16

   

Price ($) Quantity demanded Total Revenue ($) Marginal Revenue 12 0 0 11 4 44 11 10 8 80 9 8 12 96 4 7 16 112 4 6 20 120 2 5 24 120 0 4 28 112 -2

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