Hi makbool-ga,
The fact that these quantity and price values are facing a monopolist
simply mean that the values will not be forced to change due to a
change in competitor's market (which would take place in an oligopoly
or a competitive market).
First, lets start out with the formulas needed to calculate Total
Revenue, Marginal Revenue, and Marginal Cost:
Total Revenue = (Quantity)*(Price)
Marginal Revenue = (Change in Total Revenue)/(Change in Quantity)
For our purposes, Change in Quantity in always equal to one.
Marginal Cost = (Change in Total Cost)/(Change in Quantity)
For our purposes, Change in Quantity in always equal to one.
Below is the completed table of values:
Quantity Price Total Revenue Marginal Revenue Marginal Cost
1 25 $25 $25 $4
2 20 40 15 4
3 16 48 8 4
4 13 52 4 4
5 11 55 3 4
6 9 53 -2 4
In order to determine the profit-maximizing level of output, we need
to find the level of output at which (Marginal Revenue - Marginal
Cost) is minimal while still not negative.
Marginal Profit = Marginal Revenue - Marginal Cost
When producing 3 units, marginal profit is $4. However, when 4 units
are produced, marginal profit is $0. This means that profit is
maximized at two points: when either 3 or 4 units of output are
produced. To see this lets take a couple of calculations of profit as
a function of quantity:
Profit(Quantity) = Total Revenue - (Quantity)*(Unit Cost)
Profit(3) = $48 - 3*4 = $48 - $12 = $36
Profit(4) = $52 - 4*4 = $52 - $16 = $36
Hope that helps, and if you have problems understanding any of the
information above please feel free to post a clarification :)
Cheers!
answerguru-ga |
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