ABC Corporation has a local monopoly in the sale of automatic paper towel dispen
ID: 1161979 • Letter: A
Question
ABC Corporation has a local monopoly in the sale of automatic paper towel dispensers. The table below gives you information concerning the demand for these towel dispensers at various prices and the cost of production of these dispensers at various levels of output. Quantity Price Marginal Revenue Profit Total Revenue Total Costs Marginal Costs $80 100 125 155 190 230 $100 85 70 0 2 40 25 Complete the table by filling in the correct values for each cell. What level of output maximizes profit for this firm? What price should this firm this firm charge?Explanation / Answer
Solution:
1)
Quantity
Price
TR
MR
TC
MC
Profit
0
100
0
80
1
85
85
85
100
20
-15
2
70
140
55
125
25
15
3
55
165
25
155
30
10
4
40
160
-5
190
35
-30
5
25
125
-35
230
40
-105
?
Working:
Profit = Total Revenue – Total Cost
Total Revenue = Price * Quantity
MR: Change in Total revenue
MC: Change in Total cost
2) As evident in the table above, when quantity equals 2 units firm is maximizing profits
3) The firm will charge a price of $70 as after this point marginal costs start exceeding marginal revenue
Quantity
Price
TR
MR
TC
MC
Profit
0
100
0
80
1
85
85
85
100
20
-15
2
70
140
55
125
25
15
3
55
165
25
155
30
10
4
40
160
-5
190
35
-30
5
25
125
-35
230
40
-105