Question 3 Suppose a baseball manufacturer has acquired a monopoly on the produc

Question

Question 3

Suppose a baseball manufacturer has acquired a monopoly on the production of baseballs, and faces the following demand and cost situation:

a Reconstruct the above table in your answer sheet and fill in the table.

b If the firm would like to maximise profits, what price should it charge and how many baseballs should it sell? Briefly explain.

Price Quantity (Per week) Total revenue marginal revenue Total cost Marrginal Cost $20 15,000 $330,000 $19 20,000 365,000 $18 25,000 405,000 $17 30,000 450,000 $16 35,000 500,000 $15 40,000 555,000

Explanation / Answer

Total Revenue = price * quantity

Marginal Revenue = TRn-TRn-1

Marginal cost = TCn-TCn-1

b.) condition for maximising firm profits is when MR=MC.

At the point Marginal revenue is equal to the marginal cost firms earns maximum profits.

So at 35,000 unit of quantity per week marginal revenue and marginal cost becomes equal that is $50,000 and the price charged will be $16 . 35,000 units of baseballs should it sell every week.

price quantity (per week) total revenue marginal revenue total cost marginal cost $20 15,000 $300000 - $330,000 - $19 20,000 $380000 $80000 $365,000 $35000 $18 25,000 $450000 $70000 $405,000 $40000 $17 30,000 $510000 $60000 $450,000 $45000 $16 35,000 $560000 $50000 $500,000 $50000 $15 40,000 $600000 $40000 $555,000 $55000

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