Economics 102: Monopoly Worksheet Solutions

Part One: Monopoly Worksheet Calculations

• Objective: Calculate total revenue, marginal revenue, and total profit for a hypothetical monopolist.

Table of Values

The table provides quantity, price, total cost, and allows for the calculation of total revenue, marginal revenue, and total profit.

Key Principles

• Profit Maximization: A monopolist maximizes profit where marginal revenue (MR) equals marginal cost (MC).

• Calculations:

  • Total Revenue = Price × Quantity
  • Marginal Revenue = Change in Total Revenue / Change in Quantity
  • Total Profit = Total Revenue − Total Cost

Answers to Part One Questions

1. Profit Maximizing Condition: For a monopolist, the profit-maximizing rate of output occurs where marginal revenue equals marginal cost. MR = MC

2. Profit Maximizing Output and Price:

   • The profit-maximizing rate of output is 4 units.
   • The profit-maximizing price will be $10.00.

3. Maximum Possible Profit: The firm’s maximum possible profit is $10.00.

Part Two: Monopoly and Cost Curves

• Scenario: Analyzing cost curves and market demand for a monopolist producer.

Answers to Part Two Questions

1. Profit Maximizing Output and Price: To maximize profits, the monopolist will select an output of 14 units and charge a price of $120.

2. Monopoly Profit:

   • The monopolist makes a profit equal to (\text{price} – ATC) \times \text{output}.
   • (\text{$120} – \text{$60}) \times 14 = \text{$840}

3. Monopoly vs. Competitive Industry:

   • Monopoly price and output differ from a competitive industry.
   • The short-run competitive equilibrium would occur where market demand equals the market marginal cost (i.e., the market supply curve for the competitive market).
   • Competitive industry output in the short-run would be 20 units and a price of $110.