Imagine a small town in a remote area where only two residents, Maria and Miguel
ID: 1212582 • Letter: I
Question
Imagine a small town in a remote area where only two residents, Maria and Miguel, own dairies that produce milk that is safe to drink. Each week Maria and Miguel work together to decide how many gallons of milk to produce. They bring milk to town and sell it at whatever price the market will bear. To keep things simple, suppose that Maria and Miguel can produce as much milk as they want without cost so that the marginal cost is zero. The weekly town demand schedule and total revenue schedule for milk is shown in the table below: Suppose that Maria and Miguel work together in order to operate as a profit-maximizing monopolist. What price will they charge for milk? $12 $14 $8 $10Explanation / Answer
Ans: $12
Explanation: Since marginal cost is 0, The total revenue = Total profit. Thus, it is seen from the above table that the profit is maximum (i.e. $72) at Q = 6. So, the price charged to earn maximum profit of $72 is $12.