Group assignment presentation 8
Problem 1: The following table shows the demand & cost data for a
monopolist:
a. Complete the table
Quantity Price ($) Total Marginal Total Average Marginal
revenue revenue cost ($) total cost ($)
($) ($) cost ($)
0 8.5 0 - 5 - -
1 8.0 8.0 8.0 9 9.0 4
2 7.5 15.0 7.0 11.5 5.75 2.5
3 7.0 21.0 6.0 12.5 4.167 1.0
4 6.5 26.0 5.0 13.5 3.375 1.0
5 6.0 30.0 4.0 14.0 2.8 0.5
6 5.5 33.0 3.0 16.0 2.67 2.0
7 5.0 35.0 2.0 20.0 2.857 4.0
8 4.5 36.0 1.0 25.0 3.125 5.0
9 4.0 36.0 0 32.0 3.56 7.0
10 3.5 35.0 -1.0 40.0 4.0 8.0
b. What quantity will the monopolist produce?
Quantity Price ($) Marginal Marginal |MR - MC|
revenue ($) cost ($)
0 8.5 - - -
1 8.0 8.0 4 4.0
2 7.5 7.0 2.5 4.5
3 7.0 6.0 1.0 5.0
4 6.5 5.0 1.0 4.0
5 6.0 4.0 0.5 3.5
6 5.5 3.0 2.0 1.0
7 5.0 2.0 4.0 2.0
8 4.5 1.0 5.0 4.0
9 4.0 0 7.0 7.0
10 3.5 -1.0 8.0 9.0
- The quantity that the monopolist will choose to produce in order to
earn the optimal profit is 6.
c. What price will the monopolist charge?
- The price that the monopolist will choose to charge in order to earn
the optimal profit is 5.5$.
d. What will the profit be at this price?
The total revenue at this point is: 33.0
The total cost at this price is: 16.0
Therefore, the profit at this point = TR - TC = 33.0 - 16.0 = 17.0 $
Problem 2:
A firm has demand function of P = 100 - Q ($) and total cost function of TC =
500 + 4Q+ Q^2
a. Is this firm a perfect competitive firm? Why?
Because: P = 100 - Q -> TR = P.Q = Q.(100-Q) = 100Q - Q^2
-> MR = (TR)’ = 100 - 2Q
-> MR < P -> imperfect competitive market
b. What is price and quantity to maximize total revenue? What is
that maximum total revenue?
Total revenue = Quantity x Price = Q x (100 - Q) = 100Q - Q^2
(TR)’ = 100 - 2Q = 0 -> Q = 50
-> P = 100 - Q = 100 - 50 = 50
Maximum total revenue: TR = 50 x 50 = 2500
c. What is the price and optimal quantity to maximize profit? What
is that maximum total profit ?
TR = 100Q - Q^2
TC = 500 + 4Q +Q^2
Profit = TR - TC = 100Q - Q^2 - 500 - 4Q - Q^2 = -2Q^2 - 96Q - 500
(P)’ = -4Q - 96 = 0 -> Q = 24
Because: P = 100 - Q -> P = 100 - 24 = 76$
Total revenue = 100Q - Q^2 = 100 x 24 - 24^2 = 1824
Total cost = 500 + 4Q +Q^2 = 500 + 4 x 24 +24^2 = 1172
Maximum profit = TR - TC = 1824 - 1172 = 652$
d. Asume government imposes a tax of 8 $ per unit of goods sold,
what is the price and optimal quantity that gives the firm
maximum profit? What is this maximum profit?
TC = 500 + 4Q +Q^2
Tax per unit: $8
-> New TC = 500 + 4Q + Q^2 + 8Q
-> New TC = 500 + 12Q + Q^2
-> New Profit = TR - new TC = 100Q - Q^2 - (500 + 12Q + Q^2)
= - 2Q^2 + 88Q - 500
-> (P)’ = -4Q + 88 = 0 -> Q = 22
Because: P = 100 - Q -> P = 100 - 22 = 78$
Total revenue = 100Q - Q^2 = 100 x 22 - 22^2 = 1716
Total cost = 500 + 12Q + Q^2 = 500 + 12 x 22 + 22^2 = 1248
Maximum profit = TR - TC = 1716 - 1248 = 468$
e. Asume government imposes a fixed tax of 100 $, what is the price
and optimal quantity that gives the firm maximum profit?
TC = 500 + 4Q +Q^2
Tax per unit: $100
-> New TC = 500 + 4Q + Q^2 + 100
-> New TC = 600 + 104Q + Q^2
-> New Profit = TR - new TC = 100Q - Q^2 - (600 + 12Q + Q^2)
= - 2Q^2 + 96Q - 600
-> (P)’ = -4Q + 96 = 0 -> Q = 24
Because: P = 100 - Q -> P = 100 - 24 = 76$
Total revenue = 100Q - Q^2 = 100 x 24 - 24^2 = 1824
Total cost = 600 + 4Q +Q^2 = 600 + 4 x 24 +24^2 = 1272
Maximum profit = TR - TC = 1824 - 1272 = 552$
