The data below relate to a pure monopolist and the product it produces. 1.) What
ID: 1198640 • Letter: T
Question
The data below relate to a pure monopolist and the product it produces.
1.) What is the profit-maximizing output and price for this monopolist?
2.) What is the profit-maximizing output and price for a competitor?
(TR=Total Revenue; MR=Marginal Revenue)
Price
Q
TR
MR
TC
MC
22
0
0
20
20
1
20
20
24
4
18
2
36
16
27
3
16
3
48
12
32
5
14
4
56
8
40
8
12
5
60
4
49
9
10
6
60
0
59
10
Price
Q
TR
MR
TC
MC
22
0
0
20
20
1
20
20
24
4
18
2
36
16
27
3
16
3
48
12
32
5
14
4
56
8
40
8
12
5
60
4
49
9
10
6
60
0
59
10
Explanation / Answer
1.
For monopolist, to achieve profit maximizing output
Marginal Revenue = Marginal Cost
It is achieved when 4 units are produced. At this level,
MR=MC=8
Thus,
Profit maximizing output = 04
Price = 14
Profit = Total Revenue – Total Cost = 56-40 = 16
2.
In monopoly, there is one supplier of the product. If a competitor joins the supplier, it does not stand to be monopoly.
If the above data mentioned is also for the competitor. Then, Competitor will also produce at the level of:
MC = MR
Thus,
Profit Maximizing output = 4 units
If it is a perfect competition
Then,
MR=MC = Price
Thus,
Price = MR=MC= 8
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