Posted by KEN on .
Willy's widgets, a monopoly, faces the following demand schedule (sales of widgets per month):
Price $20 30 40 50 60 70 80 90 100
Quantity 40 35 30 25 20 15 10 5 0
Calculate marginal revenue over each interval in the schedule (for example, between Q = 40 and Q=35). Recall that the revenue is the added revenue from an additional unit of production/sales and assume MR is constant within each interval.
If marginal cost is constant at $20 and total fixed cost is $100, what is the profit maximizing output level and price. Does the firm earn a profit or loss and how much is it?
Here's what I got...although I would double-check my work as I quickly input the data. After running a regression analysis, I got an inverse demand function of P = 100 - 2Q. MR = a + 2bQ and MC = 20. Therefore, equating MR and MC will provide the profit-maximizing quantity. Once the quantity is derived, input that number in the inverse demand function to get your profit-maiximizing price. The rest is down hill. Calculate total revenue, then subtract total costs from this to get profit. Again, double-check my work.
Wednesday, September 25, 2013 at 6:17am
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