Asked by Jasmine Renteria on May 16, 2024
Verified
Answer the question on the basis of the following information for a pure monopolist: Output Total Cost 0$25012602290335044805700 Product Price $500300250200150100\begin{array}{ccc}\begin{array}{ccc}\\\text { Output } & & \text { Total Cost } \\\hline0 & & \$ 250 \\1 & & 260 \\2 & & 290 \\3 & & 350 \\4 & & 480 \\5 & & 700\end{array}\begin{array}{l}\text { Product }\\\begin{array}{c}\text { Price } \\\hline \$ 500 \\300 \\250 \\200 \\150 \\100\end{array}\end{array}\end{array} Output 012345 Total Cost $250260290350480700 Product Price $500300250200150100 If the given profit-maximizing monopolist is able to price discriminate,charging each customer the price associated with each given level of output,how many units will the firm produce?
A) 2.
B) 3.
C) 4.
D) 5.
Price Discriminate
The strategy of selling the same product to different customers at different prices based on willingness to pay, market segment, or conditions.
Profit-maximizing Monopolist
A monopolistic firm that determines its level of production and price by aiming to maximize its profits, where it faces no competition.
Units Produce
Units produced refer to the total count of items or goods manufactured or processed by a company or facility over a given time period.
- Review the idea of price discrimination, focusing on its preconditions and results.
Verified Answer
JT
JADIAMOND THOMASMay 19, 2024
Final Answer :
C
Explanation :
To maximize profit, a monopolist produces where marginal revenue (MR) equals marginal cost (MC). We can calculate MR by taking the change in total revenue (TR) from selling an additional unit of output.
Output Total Cost Price Total Revenue Marginal Revenue Marginal Cost 0$250−−−−1260500500500−(−)=500260−250=102290300600600−500=100290−260=303350250750750−600=150350−290=604480200800800−750=50480−350=1305700150750750−800=−50700−480=220\begin{array}{ccc} \begin{array}{ccc} \\ \text { Output } & & \text { Total Cost } & & \text { Price } & & \text { Total Revenue } & & \text { Marginal Revenue } & & \text { Marginal Cost } \\ \hline 0 & & \$ 250 & & - & & - & & - & & - \\ 1 & & 260 & & 500 & & 500 & & 500-(-) = 500 & & 260-250 = 10 \\ 2 & & 290 & & 300 & & 600 & & 600-500 = 100 & & 290-260 = 30 \\ 3 & & 350 & & 250 & & 750 & & 750-600 = 150 & & 350-290 = 60 \\ 4 & & 480 & & 200 & & 800 & & 800-750 = 50 & & 480-350 = 130 \\ 5 & & 700 & & 150 & & 750 & & 750-800 = -50 & & 700-480 = 220 \end{array} \end{array} Output 012345 Total Cost $250260290350480700 Price −500300250200150 Total Revenue −500600750800750 Marginal Revenue −500−(−)=500600−500=100750−600=150800−750=50750−800=−50 Marginal Cost −260−250=10290−260=30350−290=60480−350=130700−480=220
When the monopolist is able to price discriminate, they can charge a different price for each unit sold. To find the profit-maximizing output level, we need to consider the marginal revenue and cost at each price level.
At a price of $500, the monopolist will only sell one unit, since the marginal cost of producing a second unit is higher than the price.
At a price of $300, the monopolist will produce up to 2 units, since the marginal revenue of the second unit is still greater than the marginal cost.
At a price of $250, the monopolist will produce up to 3 units, since the marginal revenue of the third unit is still greater than the marginal cost.
At a price of $200, the monopolist will produce up to 4 units, since the marginal revenue of the fourth unit is still greater than the marginal cost.
At a price of $150, the monopolist will produce up to 5 units, since the marginal revenue of the fifth unit is still greater than the marginal cost.
Therefore, the answer is C) 4.
Output Total Cost Price Total Revenue Marginal Revenue Marginal Cost 0$250−−−−1260500500500−(−)=500260−250=102290300600600−500=100290−260=303350250750750−600=150350−290=604480200800800−750=50480−350=1305700150750750−800=−50700−480=220\begin{array}{ccc} \begin{array}{ccc} \\ \text { Output } & & \text { Total Cost } & & \text { Price } & & \text { Total Revenue } & & \text { Marginal Revenue } & & \text { Marginal Cost } \\ \hline 0 & & \$ 250 & & - & & - & & - & & - \\ 1 & & 260 & & 500 & & 500 & & 500-(-) = 500 & & 260-250 = 10 \\ 2 & & 290 & & 300 & & 600 & & 600-500 = 100 & & 290-260 = 30 \\ 3 & & 350 & & 250 & & 750 & & 750-600 = 150 & & 350-290 = 60 \\ 4 & & 480 & & 200 & & 800 & & 800-750 = 50 & & 480-350 = 130 \\ 5 & & 700 & & 150 & & 750 & & 750-800 = -50 & & 700-480 = 220 \end{array} \end{array} Output 012345 Total Cost $250260290350480700 Price −500300250200150 Total Revenue −500600750800750 Marginal Revenue −500−(−)=500600−500=100750−600=150800−750=50750−800=−50 Marginal Cost −260−250=10290−260=30350−290=60480−350=130700−480=220
When the monopolist is able to price discriminate, they can charge a different price for each unit sold. To find the profit-maximizing output level, we need to consider the marginal revenue and cost at each price level.
At a price of $500, the monopolist will only sell one unit, since the marginal cost of producing a second unit is higher than the price.
At a price of $300, the monopolist will produce up to 2 units, since the marginal revenue of the second unit is still greater than the marginal cost.
At a price of $250, the monopolist will produce up to 3 units, since the marginal revenue of the third unit is still greater than the marginal cost.
At a price of $200, the monopolist will produce up to 4 units, since the marginal revenue of the fourth unit is still greater than the marginal cost.
At a price of $150, the monopolist will produce up to 5 units, since the marginal revenue of the fifth unit is still greater than the marginal cost.
Therefore, the answer is C) 4.
Learning Objectives
- Review the idea of price discrimination, focusing on its preconditions and results.