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Question:

The market demand curve for a commodity and the total cost for a monopoly firm producing the commodity are given in the schedules below. 

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

Price

10

60

90

100

102

105

109

115

125

Use the information given to calculate the following:

(a) The MIR and MC schedules

(b) The quantities for which MIR 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 the equilibrium

Answer:

(a)

Quantity

Price/AR

TR = P * Q

MR = TRn- TRn-1

TC (Rs)

MC = TCn-TCn-1

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 6th unit of output i.e., 4.

(c) At equilibrium, MR equals MC, and right here MR equals MC on the sixth unit of output, wherein MC is upward sloping. Hence, the equilibrium price is Rs 19.

(d) TR = Rs 114

TC =Rs 109

general earnings  = TR - TC

= Rs 114 – 109 = Rs five

Hence, income is the same as Rs 5 .


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