Reference no: EM13213706
substitute the following set of prices for the prices shown in the book: Table 22-5 Price Quanity Marginal Revenue Marginal Cost Marginal Profit $22 0 X X X $20 1 $20 $5 $15 $18 2 16 6 10 $16 3 12 7 5 $14 4 8 8 0 $12 5 4 9 -5 $10 6 0 10 -10 $8 7 -4 11 -15 $6 8 -8 12 -20 Substitute Prices $27 instead of 22 $25 instead of 20 $23 instead of 18 $21 instead of 16 $19 instead of 14 $17 instead of 12 $15 instead of 10 $13 instead of 8 $11 instead of 6
1A. Starting with Q = 1, what are the first three total revenue numbers, using the new prices?
1B. Starting with Q = 1, what are the first three marginal revenue numbers, using the new prices?
2A. Apply the MR = MC method to determine the profit-maximizing level of output and the associated price. Use the new marginal revenue numbers that you calculated for #1B. The cost data in the table remain the same.
2B. At the profit-maximizing (or loss minimizing) level of production that you chose for #2A, is the firm earning a profit or taking a loss? How much? Use the following formula: Profit = Total Revenue - Total Costs Use the new total revenue numbers you calculated for #1A. Now add a total cost column and use the following numbers starting at Q = 0: $15, 20, 26, 33, 41, 50, 60, 71, and 83.
3. Why are the marginal revenue numbers less than the price in the table on page 22-5? You can use either the original or the new MR numbers to answer this question. Note that this is different from pure competition, where P = MR. In other words, why is marginal revenue less than price for a monopolist?
4. Using the new total revenue numbers you determined for question #1, what is the inelastic price range, and why? Hint: Use the total revenue test for elasticity.
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