The following table depicts the cost and demand structure a natural monopoly faces.Provided that the firm operates as a monopolist,what is the price charged and quantity produced in order to maximize profits? $$\begin{array} { c c c c c c }
\text { Quantity } & \text { Price (\$) } & \begin{array} { c }
\text { Total } \
\text { Revenue }
\end{array} & \begin{array} { c }
\text { Marginal } \
\text { Revenue }
\end{array} & \begin{array} { c }
\text { Total } \
\text { Cost }
\end{array} & \begin{array} { c }
\text { Marginal } \
\text { Cost }
\end{array} \
\hline 0 & 1,000 & 0 & 0 & 0 & 0 \
1 & 900 & 900 & 900 & 800 & 800 \
2 & 800 & 1,600 & 700 & 1,400 & 600 \
3 & 700 & 2,100 & 500 & 1,900 & 500 \
4 & 600 & 2,400 & 300 & 2,400 & 500 \
5 & 500 & 2,500 & 100 & 2,800 & 400 \
6 & 400 & 2,400 & 100 & 3,200 & 400
\end{array}$$

Question

The following table depicts the cost and demand structure a natural monopoly faces.Provided that the firm operates as a monopolist,what is the price charged and quantity produced in order to maximize profits? $$\begin{array} { c c c c c c } 
\text { Quantity } & \text { Price (\$) } & \begin{array} { c } 
\text { Total } \
\text { Revenue }
\end{array} & \begin{array} { c } 
\text { Marginal } \
\text { Revenue }
\end{array} & \begin{array} { c } 
\text { Total } \
\text { Cost }
\end{array} & \begin{array} { c } 
\text { Marginal } \
\text { Cost }
\end{array} \
\hline 0 & 1,000 & 0 & 0 & 0 & 0 \
1 & 900 & 900 & 900 & 800 & 800 \
2 & 800 & 1,600 & 700 & 1,400 & 600 \
3 & 700 & 2,100 & 500 & 1,900 & 500 \
4 & 600 & 2,400 & 300 & 2,400 & 500 \
5 & 500 & 2,500 & 100 & 2,800 & 400 \
6 & 400 & 2,400 & 100 & 3,200 & 400
\end{array}$$

Quizplus · Accepted Answer

To maximize profits, a monopolist produces where marginal revenue equals marginal cost. Here, MR = MC at quantity 3, with a price of $700.

The Following Table Depicts the Cost and Demand Structure a Natural