Question

The market demand curve for a commodity and the total cost for a monopoly firm producing the commodity is given by the schedules below. Use the information to calculate the following:

Quantity	0	1	2	3	4	5	6	7	8
Price	52	44	37	31	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

(a) The MR and MC schedules
(b) The quantities for which the 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 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