# SOLUTIONS: MONOPOLY

1.

 Price Quantity MR MC 4 400 4 2 3.5 800 3 2 3 1400 2.33 2 2.5 2800 2 2 2 4000 0.833 2s

b. Profit max Q = 2800; P= 2.5

c. VC = MC x Q (This is the case when MC is constant)

VC (q=2800) = 2800x 2 = 5600

FC = 1000

TC = VC + FC = 5600+1000=6600

Profit = TR - TC = 7000-6600 = 400.

d. Q = 2800; P= 2.5; profit = 900

Unless the firm decides to shut down, fixed costs do not affect price-output decisions.

2.                  a.

 Price Quantity MR MC 8 100 1 7 150 5 1 6 200 3 1 5 250 1 1 4 300 -1 1 3 350 -3 1 2 400 -5 1

b. P= 5; Q = 250,000

c. VC = 250,000

FC= 100,0000

TC= 350,000

TR = 5 (250,000) = 1,250,000

Profit = 900,000

d. Profit max price and quantity does not change. New  profit = 1,250,000 - 400,000 = 850,000

e. The first graph is the one that corresponds to this particular exercise where the MC is constant at one. The second graph is for the typical case where the MC is not constant.

## Quantity

 = Old profit

 = New profit

## Old ATC

 = Old profit

## Quantity

 = New profit

## Demand

3.                  a. See table

 Price Quantity Mg Revenue MC 10 1 - 8 9 2 8 8 8 3 6 8 7 4 4 8 6 5 2 8 5 6 0 8 4 7 -2 8

Profit max price = 9; quantity = 2; profit = TR (18) - TC  (16) = 2

b. See table

 Price Quantity Mg Revenue MC 0.5 500,000 - 0.1 0.45 600,000 0.2 0.1 0.4 700,000 0.1 0.1 0.35 800,000 0 0.1 0.3 900,000 0.1 0.1

Profit max price = 0.4 ; quantity = 700,000 ; profit = TR (280,000) - TC  (120,000) = 160,000

c. See Table

 Price Quantity Mg Revenue MC 20 400 - - 18 800 16 5 16 1200 12 6 14 1600 8 8 12 2000 4 9 10 2400 0 12

Profit max price = 14; quantity = 1,600; profit = TR (22,400) - TC  (12,600) = 9,800

d. See Table

 Price Quantity Mg Revenue MC 1 1000 0.9 2000 0.8 0.1 0.8 3500 0.667 0.1 0.7 5500 0.525 0.1 0.6 8000 0.380 0.1 0.5 11000 0.233 0.110 0.4 15000 0.125 0.125 0.3 20000 0 0.125

Profit max price = 0.4; quantity = 15,000; profit = TR (6,000) - TC  (1,730) = 4,270

PRICE DISCRIMINATION

4.

 Price Quantity Revenues Mg Revenue MC 50 100 5000 50 10 40 300 12000 35 10 30 500 15000 15 10 20 1000 20000 10 10

Profit max price = 20; quantity = 1000

 Price Quantity Revenues Mg Revenue MC 50 500 25000 50 10 40 700 28000 15 10 30 1050 31500 10 10 20 1650 33000 2.5 10

Profit max price = 30; quantity = 1050

a.      See tables.

b.      See below each table

c.       Total profit= TR [(1050x30)+(1000x20)]- TC [(1050+1000=2050)x10] = 51,500 - 20,500 = 31,000

5. a. See Table

Home Market

 Price Quantity Revenues Mg Revenue MC 10 2,000 \$20,000.00 1 9 2,500 \$22,500.00 5 1 8 3,000 \$24,000.00 3 1 7 3,500 \$24,500.00 1 1 6 4,000 \$24,000.00 -1 1 5 4,500 \$22,500.00 -3 1 4 5,000 \$20,000.00 -5 1

Profit max price = 7; quantity = 3,500

Foreign Market

 Price Quantity Revenues Mg Revenue MC 10 2,000 20000 1 9 3,000 27000 7 1 8 4,000 32000 5 1 7 5,000 35000 3 1 6 6,000 36000 1 1 5 7,000 35000 -1 1 4 8,000 32000 -3 1

b. Profit max price = 6; quantity = 6,000

d.      Total profit = (7x3,500) + (6x6,000) - 5,000 - (3,500+6,000)x 1

6. a. See table.

Suburbs

 Price Quantity Revenues MR MC 4 200 800 1 3.5 400 1400 3 1 3 600 1800 2 1 2.5 800 2000 1 1 2 1000 2000 0 1 1.5 1200 1800 -1 1

b. Profit max price = 2.5; quantity = 800

Inner City

 Price Quantity Revenues MR MC 4 100 400 1 3.5 120 420 1 1 3 140 420 0 1 2.5 160 400 -1 1 2 180 360 -2 1 1.5 200 300 -3 1

b. Profit max price = 3.5; quantity = 120

a.      Total Profit = 2,420 - 100 - 920

APPLICATIONS

7. See Table

 Price Quantity Revenues Imelda's TR MR MC 40 10,000 400000 80000 20 35 20,000 700000 140000 30 20 30 30,000 900000 180000 20 20 25 40,000 1000000 200000 10 20 20 50,000 1000000 200000 0 20

a.      See table.

b.      Profit Max Price = 30; quantity = 30,000.

c.      Imelda's total revenue for each price: see table.

d.      Price maximizes Imelda's revenues = 25 or 20.

8.

 Price Quantity Revenues Magdal's TR MR MC 20 20,000 400000 100000 6 18 25,000 450000 112500 10 6 16 30,000 480000 120000 6 6 14 35,000 490000 122500 2 6 12 40,000 480000 120000 -2 6 10 45,000 450000 112500 -6 6

a.      See table

b.      P = 16; Q = 30,000

c.      See table

d.      P=14 Magdalena's revenues = 122,500

9.

 Price Quantity Revenues MR MC MC + tax 1 30,000 30000 0.95 40,000 38000 0.8 0.1 0.2 0.9 50,000 45000 0.7 0.1 0.2 0.85 60,000 51000 0.6 0.1 0.2 0.8 70,000 56000 0.5 0.1 0.2 0.75 80,000 60000 0.4 0.1 0.2 0.7 90,000 63000 0.3 0.1 0.2 0.65 100,000 65000 0.2 0.1 0.2 Profit max with tax 0.6 110,000 66000 0.1 0.1 0.2 Profit max without tax 0.55 120,000 66000 0 0.1 0.2

a.      See table

b.      P= 0.6; Q= 110,000

c.      Tax adds to MC. New P = 0.65; new Q=100,000.

d.      Consumers pay five cents more.

 MC without tax

 MR

 0.65

 0.6

 0.2

 0.1

 100,000

 110,000

 MC plus tax

 Demand

10.

 Price Quantity Revenues MR MC 45 60,000 2700000 15 40 80,000 3200000 25 15 35 100,000 3500000 15 15 30 120,000 3600000 5 15 25 140,000 3500000 -5 15

a.      See table

b.      P=35; q= 100,000

c.      Company must charge the highest possible price = \$25. At this price the company can sell 140,000 units.

11.

 Price Quantity Revenues MR MC Elasticity 10 1 10 8 9 2 18 8 8 6.33 Elastic 8 3 24 6 8 3.40 Elastic 7 4 28 4 8 2.14 Elastic 6 5 30 2 8 1.44 Elastic 5 6 30 0 8 1.00 Unitary elastic 4 7 28 -2 8 0.69 Inelastic