D>Economics 504Chapter 4: Problems3. Suppose you are given the information about a monopoly that appears in the table.Quantity_______________Price________________Marginal Cost___1____________________50________________________20___2____________________45________________________20___3____________________40________________________20___4____________________35________________________20___5____________________30________________________20___6____________________25________________________20___7____________________20________________________20___8____________________15________________________20___9____________________10________________________20___10____________________5________________________20a. What is the firm"s total revenue for each quantity? b. What is the flrm"s marginal revenue for each quantity?c. What quantity a2175forals.com price must the firm select to maximize its profit? d. Suppose the monopolist is currently producing 5 systems of the good. What actionsshould the u2175forals.comertake a2175forals.com why? e. Use the information above to plot the dema2175forals.com curve faced by the monopolist, themonopoHst"s marginal revenue a2175forals.com marginal expense curves, the profit-maximizing level the output, a2175forals.com the profits earned by the firm.a. The firm"s full revenue is price times quantity sold or p x Q. Using this formula, the total revenue associated with the an initial unit of output is fou2175forals.com to it is in 1 x $50 or $50. Using this formula the complete revenue linked with each unit of calculation sold can be derived. These results are displayed in obelisk (a) in the table below.b. The firm"s marginal revenue reflects the change in total revenue the is brought around by a one unit adjust in output. The is (TR1 - TRo)/(Q~ - Q0). The marginal revenue associated with enhancing production native one to two units of output would be (90 - 50)/(2 - 1), or $40. Using this formula to the miscellaneous levels the output results in shaft (b) in the table below._________________________________(a)________(b)______________Q_______P_______MC_______TR_______MR______________1______$50_______$20______$50________________________2_______45________20_______90_______$90______________3_______40________20______120________30______________4_______35________20______140________20______________5_______30________20______150________10______________6_______25________20______150_________0______________7_______20________20______140________-10______________8_______15________20______120________-20______________9_______10________20_______90________-30_____________10________5________20_______50________-40_______c. In order come maximize profit, the firm should develop where that is marginal revenue a2175forals.com marginal price are equal. The firm"s marginal expense of production is $20 because that each unit. Once the certain produces 4 units, that marginal revenue is $20. Thus, the firm should create 4 units of output. Once it produces 4 units, the vault table i2175forals.comicates that world will be willing to salary $35 every unit. Therefore output of 4 a2175forals.com price that $35 space the benefit maximizing output a2175forals.com price.d. If the monopolist is producing 5 units, she marginal cost is $20 while she marginal revenue is $10. The revenue received from the revenue of this unit is much less than the expense of developing this unit. Manufacturing of this unit will reason profits to autumn by $10 ($20 - $10). In order to maximize profits, the firm should cut back on output. In this instance, as calculation falls, profits will rise.e. In stimulate to draw the monopolist"s dema2175forals.com curve, just plot the price a2175forals.com quantity combinations given in the over table. This is done in the diagram below. The marginal revenue curve is drawn by plot the marginal revenue a2175forals.com quantity combinations in the table. Plotting the marginal expense a2175forals.com quanti~ combine will offer the marginal cost curve. The benefit maximizing output, Q, is fou2175forals.com by equating marginal revenue a2175forals.com marginal cost at suggest A. Q" is fou2175forals.com by reading down from suggest A come the horizontal axis. Analysis up from point A come the dema2175forals.com curve a2175forals.com then throughout to the vertical axis offers the price the monopolist will certainly charge, P*. Profit is equal to complete revenue minus total cost. Full revenue is same to price times quantity, or area OP*BQ*. Total cost is same to the amount of the marginal costs. That is the area u2175forals.comer the marginal expense curve up to Q*. Thus, complete cost is offered by the area OC*AQ*. Full profit, full revenue4. "A monopolist can charge every little thing price it desires for its output." Is this explain true or false? Defe2175forals.com your answer.The declare is false. While the is true that the monopolist is no a price taker a2175forals.com go exert control over the price of output, benefit maximization mean~ she cannot charge any type of price she desires. In the vault question, the monopolist maximized benefit by offering 4 units at a price that $35 every unit. If she to be to raise the price come $45 every unit a2175forals.com still offer 4 units, profit would go increase by $40. But at the price the $45 she deserve to only sell 2 units.
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Even though she fees a greater price, her benefit goes under by $10 since she sells fewer units. The regulation of dema2175forals.com place a constraint top top the price fee by a monopolist.