Consider the following demand and cost information
$\begin{array} { | c | c | c | }
\hline \text { Quantity } & \text { Price } & \text { Total Cost } \
\hline 0 & \text { R40 } & \text { R10 } \
\hline 1 & \text { R30 } & \text { R15 } \
\hline 2 & \text { R20 } & \text { R25 } \
\hline 3 & \text { R10 } & \text { R40 } \
\hline 4 & \text { R0 } & \text { R60 } \
\hline
\end{array}$

-Refer to the table above. To maximise profit, the monopolist sets the price at

Question

Consider the following demand and cost information
$\begin{array} { | c | c | c | } 
\hline \text { Quantity } & \text { Price } & \text { Total Cost } \
\hline 0 & \text { R40 } & \text { R10 } \
\hline 1 & \text { R30 } & \text { R15 } \
\hline 2 & \text { R20 } & \text { R25 } \
\hline 3 & \text { R10 } & \text { R40 } \
\hline 4 & \text { R0 } & \text { R60 } \
\hline
\end{array}$

-Refer to the table above. To maximise profit, the monopolist sets the price at

Quizplus · Accepted Answer

The monopolist maximizes profit at the quantity where marginal revenue (MR) equals marginal cost (MC).

To find the MR, we look at the change in total revenue caused by a one-unit increase in quantity sold. The table shows that when the quantity increases by one unit from 0 to 1, the total revenue decreases by R10 from R40 to R30. When the quantity increases by one unit from 1 to 2, the total revenue decreases by R10 from R30 to R20. When the quantity increases by one unit from 2 to 3, the total revenue decreases by R10 from R20 to R10. When the quantity increases by one unit from 3 to 4, the total revenue decreases by R10 from R10 to R0.

Therefore, the MR at each quantity is: 
MR(0) = R-10 
MR(1) = R-10 
MR(2) = R-10 
MR(3) = R-10

To find the MC, we look at the change in total cost caused by a one-unit increase in quantity produced. The table shows that when the quantity increases by one unit from 0 to 1, total cost increases by R5 from R10 to R15. When the quantity increases by one unit from 1 to 2, total cost increases by R10 from R15 to R25. When the quantity increases by one unit from 2 to 3, total cost increases by R15 from R25 to R40. When the quantity increases by one unit from 3 to 4, total cost increases by R20 from R40 to R60.

Therefore, the MC at each quantity is: 
MC(0) = R10 
MC(1) = R5 
MC(2) = R10 
MC(3) = R15 
MC(4) = R20

The profit at each quantity is total revenue minus total cost: 
Profit(0) = R30 
Profit(1) = R15 
Profit(2) = R10 
Profit(3) = R-5 
Profit(4) = R-60

The monopolist would want to avoid producing at Quantity 4, as producing one more unit would lead to negative profit.

Therefore, the monopolist should produce at Quantity 2, where MR=MC. At Quantity 2, the profit is R10. The price that corresponds to Quantity 2 is R20, based on the demand information in the table. Therefore, the best choice for the monopolist is to set the price at R20.

Consider the Following Demand and Cost Information -Refer to the Table Above