1. In the following table are cost and demand data for a pure monopolist. Quanti
ID: 1185906 • Letter: 1
Question
1. In the following table are cost and demand data for a pure monopolist.
Quantity demanded
Price
Marginal revenue
Average cost
Marginal cost
0
$17.50
1
16.00
$16.00
$24.00
$24.00
2
14.50
13.00
15.00
6.00
3
13.00
10.00
11.67
5.00
4
11.50
7.00
10.50
7.00
5
10.00
4.00
10.00
8.00
6
8.50
1.00
9.75
8.50
7
7.00
Quantity demanded
Price
Marginal revenue
Average cost
Marginal cost
0
$17.50
1
16.00
$16.00
$24.00
$24.00
2
14.50
13.00
15.00
6.00
3
13.00
10.00
11.67
5.00
4
11.50
7.00
10.50
7.00
5
10.00
4.00
10.00
8.00
6
8.50
1.00
9.75
8.50
7
7.00
Explanation / Answer
Hi,
Please find the answers as follows:
Part A:
a) Would produce 4 units, Sell at 11.5 and make a profit of 4.
b) Would produce 6 units, Sell at 8.5 and make a profit of - 7.5. Bankrupt (First Part ) and Subsidize (Second Part)
c) Would produce 10 units and charge a price of 0 and make a profit of 0.
d) Most efficient allocation of resources results from either b or c. Least efficient allocation results from a.
Government would probably select situation d.
Part B:
a) M
b) C
c) Both
d) C
e) M
f) C
Thanks.
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