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Group Assignment Topic 8: Lê Minh Thư EBBA 12.3

The monopolist will produce an optimal quantity of 6 units and charge a price of $5.50 per unit, resulting in maximum profit of $16.98. The firm is not a perfect competitive firm because the price fluctuates based on quantity demanded rather than being fixed. The optimal quantity and maximum total revenue for the firm is 50 units at a price of $100-50=$50, yielding total revenue of $2500. With a demand function of P=100-Q and cost function of TC=500+4Q+Q^2, the optimal quantity to maximize profit is 24 units, with a price of $100-24=$76 and maximum profit of $652. The imposition of

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105 views3 pages

Group Assignment Topic 8: Lê Minh Thư EBBA 12.3

The monopolist will produce an optimal quantity of 6 units and charge a price of $5.50 per unit, resulting in maximum profit of $16.98. The firm is not a perfect competitive firm because the price fluctuates based on quantity demanded rather than being fixed. The optimal quantity and maximum total revenue for the firm is 50 units at a price of $100-50=$50, yielding total revenue of $2500. With a demand function of P=100-Q and cost function of TC=500+4Q+Q^2, the optimal quantity to maximize profit is 24 units, with a price of $100-24=$76 and maximum profit of $652. The imposition of

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Lê Minh Thư
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© © All Rights Reserved
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Lê Minh Thư

EBBA 12.3

GROUP ASSIGNMENT TOPIC 8

Problem 1. The following table shows the demand & cost data for a monopolist:

Quantity Price ($) Total Marginal Total cost Average Marginal


Revenue Revenue ($) Total cost Cost ($)
($) ($) ($)
0 8.5 0 - 5 - -
1 8.0 8 8 9 9 4
2 7.5 15 7 11.5 5,75 2.5
3 7.0 21 6 12.5 4,17 1
4 6.5 26 5 13.5 3,38 1
5 6.0 30 4 14.0 2,8 1.5
6 5.5 33 3 16.0 2,67 2
7 5.0 35 2 20.0 2,86 4
8 4.5 36 1 25.0 3,5 5
9 4.0 36 0 32.0 3,56 7
10 3.5 35 -1 40.0 4 8

b)What quantity will the monopolist produce?

The firm should produce the quantity at which they can maximum the profit.

The profit is max when MR=MC -> Q*=6


c) What price will the monopolist charge?

Q* = 6 => P= 5.5$
d. What will the profit be at this price?

π max= Q* (P*-ATC*)= 6.(5.5-2,67)=16,98= ~17

Problem 2: A firm has demand function of P=100-Q ($) and total cost function of
TC=500+ 4Q+Q2 ($)
a) Is this firm a perfect competitive firm? Why?
In a perfect competitive firm, the price must be fixed. In this firm, we can clearly
see that the price fluctuates, so this firm is not in perfect competitive market.
b) What is price and quantity to maximize total revenue ? What is that
maximum total revenue ?

TR function: P.Q = (100-Q).Q = - Q2 + 100Q

TR’ = -2Q +100 = 0 => TR max when Q=50

 TRmax= 2500$
c) What is price and optimal quantity to maximize profit? What is that
maximum total profit ?
Profit function: π max = TR – TC = 100Q – Q2 – (500+ 4Q+Q2) = -2Q2 + 96Q –
500
¿max)’ = -4Q + 96 = 0
 Q* = 24.
 When Q*=24, profit max = 652$
d) Asume government imposes a tax of 8 $ per unit of good sold, what is
price and optimal quantity that gives the firm maximum profit? What is this
maximum profit?

The price will increase and the demand will decreasen when government imposes a tax of
8$ per unit of good sold.

New demand function: P + 8 = 100 – Q => P = 92 – Q

New TR function: 92Q – Q2


Profit function : π max = TR – TC = 92Q - Q2 – (500+ 4Q+Q2) = -2Q2 + 88Q – 500
profit max ¿max)’=0  -4Q + 88 =0=> Q=22.
When Q*=22, profit max = 468$

e. Asume government imposes a fixed tax of 100 $, what is price and


optimal quantity that gives the firm maximum profit?

If government imposes a fixed tax of 100 $, the total revenue will be smaller.
New total revenue function: TR = 100Q – Q2 – 100
Profit function : π max = TR – TC = 100Q – Q2 – 100 – (500+ 4Q+Q2) = -2Q2 + 96Q – 600
Profit max  ¿max)’ = -4Q + 96 = 0 => Q* = 24.
When Q*=24, profit max = 552$

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