Question

The market demand curve for a commodity and the total cost for a monopoly firm producing the commodity is given in the schedules below.

Quantity	0	1	2	3	4	5	6	7	8
Price	52	44	37	3	26	22	19	16	13

 

Quantity	0	1	2	3	4	5	6	7	8
Total Cost	10	60	90	100	102	105	109	115	125

Use the information given to calculate the following:

(a) The MR and MC schedules

(b) The quantities for which MR and MC are equal

(c) The equilibrium quantity of output and the equilibrium price of the commodity

(d) The total revenue, total cost and total profit in the equilibrium

Answer 1

(a)

Quantity (units)	Price/AR (Rs )	TR = P × Q (Rs )	MR = TRn − TRn − 1 (Rs )	TC (Rs )	MC = TCn − TCn − 1 (Rs )
0	52	0	−	10	−
1	44	44	44	60	50
2	37	74	30	90	40
3	31	93	19	100	10
4	26	104	11	102	2
5	22	110	6	105	3
6	19	114	4	109	4
7	16	112	−2	115	6
8	13	104	−8	125	10

(b) MR equals MC at the 6^th unit of output.

(c) At equilibrium, MR equals MC, and here MR equals MC at the 6^th unit of output, where MC is upward sloping. Thus, the equilibrium price is Rs 19.

(d) TR = Rs 114

TC = Rs 109

Total profit = TR − TC

= Rs 114 − 109

= Rs 5