If the following are the demand and total cost schedules for Company Town Water,
ID: 1189573 • Letter: I
Question
If the following are the demand and total cost schedules for Company Town Water, a local monopoly
Output in Gallons Price per Gallon Total Cost
50,000 $0.28 $6,000
100,000 0.26 15,000
150,000 0.22 22,000
200,000 0.20 32,000
250,000 0.16 46,000
300,000 0.12 64,000
How much output will Company Town Water produce, and what price will it charge? Will it earn a profit? How much?(Hint: First compute the firm’s MR and MC schedules
Calculation Procedure:
To find the sales-maximizing solution. In terms of the firm’s MR, why are the answers different.
Calculation Procedure:
Explanation / Answer
The monopolist will produce where MR meets MC.
The following table shows marginal revenue and cost at each output level:
MR =MC=0.14 at quantity 150000 at price $0.22 .
Profit = TR - TC = 33000-22000 =$11000.
Q P Total Cost MC Total Revenue Marginal Revenue 50000 0.28 6000 14000 100000 0.26 15000 0.18 26000 0.24 150000 0.22 22000 0.14 33000 0.14 200000 0.2 32000 0.2 40000 0.14 250000 0.16 46000 0.28 40000 0 300000 0.12 64000 0.36 36000 -0.08