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