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    Group Assignment Presentation 8

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    huyền nguyễn
    1) A monopolist will produce an output of 6 units and charge a price of $5.50 per unit, yielding maximum profit of $17. 2) A firm facing a downward-sloping demand curve is not a perfectly competitive market. The profit-maximizing price and quantity for the firm is $76 and 24 units respectively, yielding maximum total profit of $652. 3) With an additional tax of $8 per unit, the profit-maximizing price and quantity decreases to $78 and 22 units respectively, yielding maximum total profit of $468.

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    Group Assignment Presentation 8

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    huyền nguyễn
    6 views4 pages
    1) A monopolist will produce an output of 6 units and charge a price of $5.50 per unit, yielding maximum profit of $17. 2) A firm facing a downward-sloping demand curve is not a perfectly competitive market. The profit-maximizing price and quantity for the firm is $76 and 24 units respectively, yielding maximum total profit of $652. 3) With an additional tax of $8 per unit, the profit-maximizing price and quantity decreases to $78 and 22 units respectively, yielding maximum total profit of $468.

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    1) A monopolist will produce an output of 6 units and charge a price of $5.50 per unit, yielding maximum profit of $17. 2) A firm facing a downward-sloping demand curve is not a perfectly competitive market. The profit-maximizing price and quantity for the firm is $76 and 24 units respectively, yielding maximum total profit of $652. 3) With an additional tax of $8 per unit, the profit-maximizing price and quantity decreases to $78 and 22 units respectively, yielding maximum total profit of $468.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    6 views4 pages

    Group Assignment Presentation 8

    Uploaded by

    huyền nguyễn
    1) A monopolist will produce an output of 6 units and charge a price of $5.50 per unit, yielding maximum profit of $17. 2) A firm facing a downward-sloping demand curve is not a perfectly competitive market. The profit-maximizing price and quantity for the firm is $76 and 24 units respectively, yielding maximum total profit of $652. 3) With an additional tax of $8 per unit, the profit-maximizing price and quantity decreases to $78 and 22 units respectively, yielding maximum total profit of $468.

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    of 4

    Group assignment presentation 8

    Problem 1
    a. Complete the table

    Quantity Price ($) Total Marginal Total Average Marginal


    revenue ($) revenue ($) cost total cost cost
    ($) ($) ($)
    0 8.5 0 0 5 0 0
    1 8.0 8.0 8.0 9 9 4
    2 7.5 15.0 7.0 11.5 5.75 2.5
    3 7.0 21.0 6.0 12.5 4.17 1.0

    4 6.5 26.0 5.0 13.5 3.375 1.0

    5 6.0 30.0 4.0 14.0 2.8 0.5


    6 5.5 33.0 3.0 16.0 2.67 2.0
    7 5.0 35.0 2.0 20.0 2.86 4.0

    8 4.5 36.0 1.0 25.0 3.125 5.0


    9 4.0 36.0 0 32.0 3.56 7.0

    10 3.5 35.0 -1 40.0 4 8.0

    b. What quantity will the monopolist produce?


    Monopolist will produce at MR=MC
    → at Q*= 6
    c. What price will the monopolist charge?
    Monopolist will change P= 5.5 at Q*= 6
    d. What will the profit be at this price?
    Profit= Q* (P*- ATC*) = 6(5.5-2.67) ≈ 17
    → πmax (or π at this price) is 17$

    Problem 2
    a. This isn’t a perfectly competitive firm. Because, if the firm is perfectly
    competitive, the market has many firms selling identical products, easy entry, and
    exit, which also shows the demand curve is perfect elastic. But D in this situation P
    = 100-Q is slope down.
    b. TR = P*Q = (100-Q) *Q =100Q – Q2
    𝑑𝑇𝑅
    => MR = = 𝑇𝑅′ =100 – 2Q
    𝑑𝑄

    To maximize total revenue, MR =0 => 100 - 2Q =0 => Q=50 => P=50


    TRmax = (100-50).50 = 2500
    Therefore, the price and quantity that maximize total revenue are $50, 50 units and
    the maximum total revenue is $2500.
    c. To maximize profit, the firm should set output when MR = MC.
    The marginal cost (MC) can be derived by taking the derivative of the total cost
    function:
    MC = TC’ = ( 500+ 4Q+Q2 )’ = 4 + 2Q.
    Equating MR and MC, we get 100 - 2Q = 4 + 2Q, which implies Q = 24.
    Substituting Q=24 into the demand function, we get P=$76. Therefore, the price
    and optimal quantity to maximize profit are P=$76 and Q=24, respectively.
    The maximum total profit can be calculated by substituting Q=24 into the profit
    function:
    Profit = TR - TC = (P×Q) - [500 + 4Q + Q2] = (76 × 24) - [500 + 4.(24) + (24)2] =
    $652.
    Therefore, the maximum total profit is $652.
    d. With an additional tax of $8 per unit, the marginal cost will increase to
    MC = 12 + 2Q.
    Equating MR and MC, we get 100 - 2Q = 12+2Q, which implies Q = 22.
    Substituting Q = 22 into the demand function, we get P = $78. Therefore, the price
    and optimal quantity that gives the firm maximum profit are P=$78 and Q=22,
    respectively.
    The maximum total profit can be calculated by substituting Q=22 into the
    profit function:
    Profit = TR - TCnew = (P×Q) - [500 + 4Q + Q2 + 8Q] = (78 × 22) - [500 + 4.(22) +
    (22)2 + 8(22)] = $468.
    Therefore, the maximum total profit with the tax of $8 per unit is $468.
    e. If government imposes a fixed tax of 100 $, the total cost will increase by
    TC=500+ 4Q+𝑄2 + 100 = 600 + 4Q + 𝑄2
    → MC=TC’=4+2Q
    And MR=TR’=100-2Q
    To maximize profit, the firm should set output when MR = MC
    ➔ 100-2Q=4+2Q
    ➔ Q=24
    ➔ Profit= TR-TC= (100Q - 𝑄2 ) – (600 + 4Q + 𝑄2 ) = 552

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