Assignment 1 (10 points) Willy\'s Widget, a monopoly, faces the following demand
ID: 2495369 • Letter: A
Question
Assignment 1 (10 points)
Willy's Widget, a monopoly, faces the following demand schedule (sales in widgets per month):
Price
Quantity
80
10
75
20
70
30
65
40
60
50
55
60
50
70
45
80
40
90
35
100
30
110
25
120
20
130
Calculate marginal revenue over each interval in the schedule. If marginal cost is constant at $38 and fixed cost is $400, what is the profit maximizing level of output? What is the level of profit? Explain your answer using marginal cost and marginal revenue.
Repeat the exercise for MC = $18
Assignment 2 (10 points)
The following diagram shows the cost structure of a monopoly firm as well as market demand. Identify on the graph and calculate the following:
Profit maximizing output level
Profit maximizing price
Total revenue
Total cost
Total profit or loss
Assignment 1 (10 points)
Willy's Widget, a monopoly, faces the following demand schedule (sales in widgets per month):
Price
Quantity
80
10
75
20
70
30
65
40
60
50
55
60
50
70
45
80
40
90
35
100
30
110
25
120
20
130
Calculate marginal revenue over each interval in the schedule. If marginal cost is constant at $38 and fixed cost is $400, what is the profit maximizing level of output? What is the level of profit? Explain your answer using marginal cost and marginal revenue.
Repeat the exercise for MC = $18
Assignment 2 (10 points)
The following diagram shows the cost structure of a monopoly firm as well as market demand. Identify on the graph and calculate the following:
Profit maximizing output level
Profit maximizing price
Total revenue
Total cost
Total profit or loss
Assignment 1 (10 points)
Willy's Widget, a monopoly, faces the following demand schedule (sales in widgets per month):
Price
Quantity
80
10
75
20
70
30
65
40
60
50
55
60
50
70
45
80
40
90
35
100
30
110
25
120
20
130
Calculate marginal revenue over each interval in the schedule. If marginal cost is constant at $38 and fixed cost is $400, what is the profit maximizing level of output? What is the level of profit? Explain your answer using marginal cost and marginal revenue.
Repeat the exercise for MC = $18
Assignment 2 (10 points)
The following diagram shows the cost structure of a monopoly firm as well as market demand. Identify on the graph and calculate the following:
Profit maximizing output level
Profit maximizing price
Total revenue
Total cost
Total profit or loss
Assignment 1 (10 points)
Willy's Widget, a monopoly, faces the following demand schedule (sales in widgets per month):
Price
Quantity
80
10
75
20
70
30
65
40
60
50
55
60
50
70
45
80
40
90
35
100
30
110
25
120
20
130
Calculate marginal revenue over each interval in the schedule. If marginal cost is constant at $38 and fixed cost is $400, what is the profit maximizing level of output? What is the level of profit? Explain your answer using marginal cost and marginal revenue.
Repeat the exercise for MC = $18
Assignment 2 (10 points)
The following diagram shows the cost structure of a monopoly firm as well as market demand. Identify on the graph and calculate the following:
Profit maximizing output level
Profit maximizing price
Total revenue
Total cost
Total profit or loss
Assignment 1 (10 points)
Willy's Widget, a monopoly, faces the following demand schedule (sales in widgets per month):
Price
Quantity
80
10
75
20
70
30
65
40
60
50
55
60
50
70
45
80
40
90
35
100
30
110
25
120
20
130
Price
Quantity
80
10
75
20
70
30
65
40
60
50
55
60
50
70
45
80
40
90
35
100
30
110
25
120
20
130
Explanation / Answer
Following is the complete table -
CASE - I
The marginal cost is constant at $38.
According to MR-MC approach, a monopolist will maximize its profit if it produces that level of output at which marginal cost is equal to marginal revenue.
In other words, profit is maximized when last unit produced should be such that MR of such unit is either greater or equal to MC.
With marginal cost being constant at $38, production of 50 units is profit-maximizing as it results in MR being greater than MC. Further production results in MR being less than MC which will only reduce profit.
So, the profit-maximizing level of output is 50 units.
Calculate profit when 50 units are produced -
Profit = Total revenue when 50 units are produced - (MC * 50 + fixed cost)
= $3,000 - (38*50+400)
= $3,000 - $2,300
= $700
The level of profit is $700.
CASE - II
The marginal cost is constant at $18.
According to MR-MC approach, a monopolist will maximize its profit if it produces that level of output at which marginal cost is equal to marginal revenue.
In other words, profit is maximized when last unit produced should be such that MR of such unit is either greater or equal to MC.
With marginal cost being constant at $18, production of 70 units is profit-maximizing as it results in MR being greater than MC. Further production results in MR being less than MC which will only reduce profit.
So, the profit-maximizing level of output is 70 units.
Calculate profit when 70 units are produced -
Profit = Total revenue when 70 units are produced - (MC * 70 + fixed cost)
= $3,500 - (18*70+400)
= $3,500 - $1,660
= $1,840
The level of profit is $1,840.
P Q TR (P * Q) MR (Change in TR/Change in Q) 80 10 800 - 75 20 1500 70 70 30 2100 60 65 40 2600 50 60 50 3000 40 55 60 3300 30 50 70 3500 20 45 80 3600 10 40 90 3600 0 35 100 3500 -10 30 110 3300 -20 25 120 3000 -30 20 130 2600 -40