Question

The market demand curve for a commodity and the total cost for a monopoly firm producing the commodity is 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 MR and MC schedules
(b) The quantities for which MR 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 1

(a)

| Quantity(units) | Price / AR(Rs) | TR = P x Q(Rs) | MR = TRn - TRn - 1 | TC (Rs) | MC= TCn - TCn - 1(Rs) |
| 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 here MR equals MC at the 6th unit of output, where MC is upward sloping. Thus, the equilibrium price is Rs 19.
(d) TR = Rs 114
TC = Rs 109
Total profit = TR – TC
= Rs 114 – 109 = Rs 5