(Table: Prices and Demand) Look at the table Prices and Demand.The New Orleans Saints have a monopoly on Saints logo baseball hats.The Saints sell at most one hat to each customer, and the table shows each customer's willingness to pay.The marginal cost of producing a hat is $18.If the Saints were a perfectly competitive firm in a perfectly competitive industry, their profit-maximizing price and output, respectively, would be:
A)$24; 3.
B)$30; 0.
C)$18; 6.
D)$$8; 6.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the profit-maximizing point is where marginal cost equals marginal revenue. However, since the Saints have a monopoly on their product, their marginal revenue is not equal to the price. To find the profit-maximizing price and output, we need to look at the demand curve for the product.

From the table, we can see that the first customer is willing to pay $30 for a hat, the second customer is willing to pay $28, and so on. The marginal revenue from selling an additional hat is the change in total revenue from selling one more hat, which is equal to the price of the hat for a perfectly competitive firm. For the Saints, however, the price decreases as they sell more hats, so the marginal revenue is less than the price.

To find the marginal revenue, we can look at the change in total revenue from selling one more hat. For example, selling to the first customer gives a total revenue of $30, and selling to the first two customers gives a total revenue of $58, so the marginal revenue from selling to the second customer is $28 ($58 - $30). Similarly, we can find the marginal revenue for each additional customer:

- Third customer: MR = $26 ($79 - $58)
- Fourth customer: MR = $24 ($101 - $79)
- Fifth customer: MR = $22 ($121 - $101)
- Sixth customer: MR = $20 ($139 - $121)
- Seventh customer: MR = $18 ($154 - $139)

To maximize profit, the Saints should produce up to the point where marginal revenue equals marginal cost. Since the marginal cost is $18, this occurs when the marginal revenue is also $18. From the table, we see that the sixth customer is willing to pay $20, but the seventh customer is only willing to pay $16, so the Saints should produce and sell up to six hats. At this output level, the price that they can charge is $18, which is equal to their marginal cost. Therefore, the profit-maximizing price and output are $18 and 6 hats, respectively.

(Table: Prices and Demand) Look at the Table Prices and Demand.The