A monopolist operates in an industry under the following demand and cost conditi

Question

A monopolist operates in an industry under the following demand and cost conditions. P Qd Tr Mr Tc Mc 6.00 0 0 1.00 5.00 1 5 8.00 4.00 2 8 11.00 3.00 3 9 15.00 2.00 4 8 20.00 1.00 5 5 27.00 Complete the table above Find the equality at which diminishing marginal returns set in If the monopolist's goal is to maximize profits, determine the optimal level of output. If the average cost of producing that quantity of goods is $1, is the monopolist earning a profit, incurring a loss, or breaking even? Equation remember: TR=PxQ MR=delta TR/delta Q MC=delta TC/deltaQ

Explanation / Answer

a)

Price

Quantity demanded

TR

MR

TC

MC

6

5

4

3

2

1

0

1

2

3

4

5

0

5

8

9

8

5

-

5

3

1

-1

-3

1

8

11

15

20

27

-

7

3

4

5

7

b) The quantity at which the diminishing marginal return set in is 2

c) Profit maximization point is where MR=MC

Therefore, it is at quantity 2

d) If average cost is $1 then the cost will be $1 X 2= $2 and the price is 4, so the firm is earning profit.

Price

Quantity demanded

TR

MR

TC

MC

6

5

4

3

2

1

0

1

2

3

4

5

0

5

8

9

8

5

-

5

3

1

-1

-3

1

8

11

15

20

27

-

7

3

4

5

7

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