exploring monopoly

Exploring Monopoly

1. Before we tackle monopoly, let's make sure we remember how total, marginal, and average revenue are related. Below is a demand curve. From it, compute total revenue and marginal revenue. Put your answers in the yellow cells, entering just a number--the dollar sign is already there. When you are finished, click the "Check Answers" button and see how you did. If you are totally lost, or totally lazy, click the "I cannot do it!" button and I will fill in the answers for you. (Hint: Do the Total Revenue column first, then the Marginal Revenue column. Notice that the first Marginal Revenue box is between 0 and 1 units of output and the last is between 4 and 5 units of output.)

Output Price Total
Revenue Marginal
Revenue

0 ---- $0 $

1 $10 $

$

2 $9 $

$

3 $8 $

$

4 $6 $

2. Below is a table showing sales and marginal revenue. Compute total revenue and average revenue. (Hint: Do the Total Revenue column first, then the Average Revenue column.)

Sales	Marginal Revenue	Total Revenue	Average Revenue
1 (first)	$14	$	$
2 (second)	$12	$	$
3 (third)	$7	$	$
4 (fourth)	$3	$	$
(Remember, marginal revenue is additional revenue from selling one more.)

3. Suppose a monopolist has constant marginal costs of $5.75 and no fixed costs. Its demand curve is below in columns 1 and 3. Compute its total and marginal revenue below:

Output Marginal
Cost Price Total
Revenue Marginal
Revenue

$5.75

$

1
$8 $

$5.75

$

2
$7 $

$5.75

$

3
$6 $

$5.75

$

4
$5 $

a. In a competitive market, the price would be $5.75. At the price of $5.75, the producer surplus would be zero and the consumer surplus would be $.

b. If this firm acts as a profit-maximizing monopoly, it will charge a price of $ and sell units of output

c. When the monopolist maximizes profits, the producer surplus is $ and the consumer surplus is $.

(Remember, marginal revenue is additional revenue from selling one more.)

Output	Price	Total Revenue	Marginal Revenue
0	----	$0	$
1	$10	$
			$
2	$9	$
			$
3	$8	$
			$
4	$6	$

3. Suppose a monopolist has constant marginal costs of $5.75 and no fixed costs. Its demand curve is below in columns 1 and 3. Compute its total and marginal revenue below:
Output	Marginal Cost	Price	Total Revenue	Marginal Revenue
	$5.75			$
1		$8	$
	$5.75			$
2		$7	$
	$5.75			$
3		$6	$
	$5.75			$
4		$5	$

a. In a competitive market, the price would be $5.75. At the price of $5.75, the producer surplus would be zero and the consumer surplus would be $.
b. If this firm acts as a profit-maximizing monopoly, it will charge a price of $ and sell units of output
c. When the monopolist maximizes profits, the producer surplus is $ and the consumer surplus is $.