1:Determine the monopolist’s profit maximising price and quantity. Calculate the
profit/loss at this price and quantity. 2:The monopolist decides to restrict output to 200 units. Determine the price at this level of output. Use this information to ca

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1. The following graph has been provided for a monopolist.
Use the above information to complete exercises 2.1. - 2.4.
1.1. Determine the monopolist's profit maximising price and quantity. Calculate the profit/loss at this price and quantity.
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Answer from Sia

Posted 3 months ago

Solution

a

Identify the profit-maximizing quantity: The monopolist maximizes profit where $MR = MC$. From the graph, this occurs at the point where the MR and MC curves intersect. This intersection happens at an output level of approximately 300 units

b

Determine the profit-maximizing price: To find the price, we look at the demand curve (AR) at the profit-maximizing quantity. At 300 units, the price on the AR curve is approximately $2.00

c

Calculate total revenue: Total revenue (TR) is calculated as $P \times Q$. At the profit-maximizing quantity and price, $TR = 2.00 \times 300 = 600$

d

Calculate total cost: Total cost (TC) is calculated as $ATC \times Q$. From the graph, the ATC at 300 units is approximately $1.25$. Therefore, $TC = 1.25 \times 300 = 375$

e

Calculate profit: Profit is calculated as $TR - TC$. Therefore, profit = $600 - 375 = 225$

Answer

The monopolist's profit-maximizing price is $2.00, and the profit-maximizing quantity is 300 units. The profit at this price and quantity is$225.

Key Concept

Profit maximization for a monopolist occurs where marginal revenue equals marginal cost.

Explanation

By identifying the intersection of the MR and MC curves, we determine the profit-maximizing quantity. The corresponding price on the demand curve (AR) gives us the profit-maximizing price. Total revenue and total cost calculations allow us to find the profit.

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