Joe Entrepreneur can sell 5 units of output at a price of $100, but must reduce

Question

Joe Entrepreneur can sell 5 units of output at a price of $100, but must reduce price to $90 in order to sell 6 units. Joe Entrepreneur does not price discriminate. Answer questions 1-4 based on this information.

1. Joe is / is not a price taker.

2. Total revenue for 6 units of output is _______ dollars.

3. Marginal revenue for the 6th unit of output is _________dollars.

4. Average revenue for 6 units of output is _________ dollars.

The diagram above illustrates the demand, marginal revenue and cost curves for a pure monopoly that does not practice price discrimination. Answer question 5-10 with reference to this diagram. Assume that the firm operates.

5. The profit-maximizing output for this monopoly is _______.

6. The profit-maximizing price for this monopoly is ________ dollars.

7. At the profit-maximizing output, demand is relatively elastic / inelastic.

8. Total revenue is maximized at an output of ______ .

9. The socially optimal or allocatively efficient output is _______.

10. In the diagram above, shade the area of the deadweight loss resulting from this monopoly.

Explanation / Answer

(1) He can set prices to increase/decrease quantity. So he is NOT a price taker.

(2) Total revenue (TR) = $90 x 6 = $540

(3) Total revenue from 5 units = $100 x 5 = $500

So, marginal revenue (MR) from 6th unit = TR from 6 units - TR from 5 units = $(540 - 500) = $40

(4) Average revenue = TR / Q = $540 / 6 = $90

(5) Monopolist maximizes profit by equating MR with MC. When this occurs, Output = 50

(6) When Q = 50, Price = 19

(7) Demand is relatively inelastic because this point lies to the left of midpoint of the demand curve - the region of inelastic demand.

(8) Total revenue is maximized at output of 90 (where revenue = 90 x 12 = 1080)

(9) Socially optimal output is 90 (Where Demand = Price = MC)

First 9 questions are answered.

Related Questions

Navigate

• Browse (All)
• Browse J
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.