The following table shows the maximum amount five potential car buyers are willi

Question

The following table shows the maximum amount five potential car buyers are willing to pay for each level of sales. Suppose that the each being sold by a car dealer operating as a monopoly (perhaps because there are no other car dealers in the market). If the price of the car is dollar 30, 000, the revenue will be dollar thousand. If the marginal cost of each car is dollar 20, 000. The monopolistic car dealer will want to sell 3 cars and the price will be dollar thousand. In a perfectly competitive market, the number of cars sold would be 5 cars.

Explanation / Answer

a.

If the price of the car is $30,000, the revenue will be ($30,000 × 3 =) $90,000. First three buyers will be purchasing cars.

b.

If the marginal cost of each car is $20,000, the monopolistic car dealer will want to sell 4 cars and the price will be $25,000.

c.

In a perfectly competitive market the number of car sold would be 5.

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