Monopoly 3. The owner of an optometry practice has the following demand and cost
ID: 1257625 • Letter: M
Question
Monopoly 3. The owner of an optometry practice has the following demand and cost schedules for eye exams: Price per Eye Exams Total Cost Total Revenue Marginal Marginal Cost Eye Exam Per Week Per Week Per Week Revenue (MR) (MC) S10,500 $100 100 S10,800 140 60 200 S11,300 40 310 900 20 550 S12,6000 Fill in the columns for total revenue, marginal revenue, and marginal cost. b. Use the data you filled in for the marginal revenue and marginal cost columns and find the profit-maximizing price (P*) and profit-maximizing number of eye exams (Q*) per week for this practice. c. How much profits will the company make at its optimum?Explanation / Answer
Working notes:
(1) Total revenue = P x Q
(2) Marginal Revenue, MR = Change in TR / Change in Q
(3) Marginal cost, MC = Change in TC / Change in Q
(4) Profit = TR - TC
Therefore:
(a)
(b)
Profit is maximized when P* = $60 and Q* = 200
(c)
Optimum profit = $700
P ($) Q TC ($) TR ($) MC ($) MR ($) Profit ($) 100 100 10,500 10,000 -500 80 140 10,800 11,200 7.5 30.0 400 60 200 11,300 12,000 8.3 13.3 700 40 310 11,900 12,400 5.5 3.6 500 20 550 12,600 11,000 2.9 -5.8 -1,600