Homework SourseThe following table depicts the daily output price and costs
The following table depicts the daily output, price, and costs of a monopoly dry cleaner located near the campus of a remote college town. (See page 540.) Output (suits cleaned) Price per Suit ($) Total Costs ($) 0 8.00 3.00 1 7.50 6.00 2 7 .00 8.50 3 6.50 10.50 4 6.00 11.50 5 5.50 13.50 6 5.00 16.00 7 4.50 19.00 8 4.00 24.00 1.Compute revenues and profits at each output rate. 2.What is the profit-maximizing rate of output? 3.Calculate the dry cleaner’s marginal revenue and marginal cost at each output level. What is the profit-maximizing level of output
Solution
Answer:
Profit Maximization: The monopolist\'s profit maximizing level of output is found by equating its marginal revenue with its marginal cost, which is the same profit maximizing condition that a perfectly competitive firm uses to determine its equilibrium level of output.
The given information is:
Q
0
1
2
3
4
5
6
7
8
P
8
7.5
7
6.5
6
5.5
5
4.5
4
TC
3
6
8.5
10.5
11.5
13.5
16
19
24
To calculate the Dry cleaner’s Profits, TR, MR, & MC at each output rate:
Formulae:
TR = Q X P
Profit = TR – TC
MR = TR/ Q
MC = TC/ Q
Q
P
TC
TR
Profit
MR
MC
0
8
3
0
-3
-
-
1
7.5
6
7.5
1.5
7.5
3
2
7
8.5
14
5.5
6.5
2.5
3
6.5
10.5
19.5
9
5.5
2
4
6
11.5
24
12.5
4.5
1.5
5
5.5
13.5
27.5
14
3.5
2
6
5
16
30
14
2.5
2.5
7
4.5
19
31.5
12.5
1.5
3
8
4
24
32
8
0.5
5
The profit-maximizing level of output:
Both 5 suits and 6 suits generate the same profit ($14.00) however 5 generates a higher rate of profit than 6 because it generates the same dollar profit on lower sales.
| Q | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| P | 8 | 7.5 | 7 | 6.5 | 6 | 5.5 | 5 | 4.5 | 4 |
| TC | 3 | 6 | 8.5 | 10.5 | 11.5 | 13.5 | 16 | 19 | 24 |
