Exhibit 8-5 Demand and cost data for a monopolist $$\begin{array} { | c | c | c | c | c | c | }
\hline \text { Price } & \text { Quantity } & \text { TR } & \text { MR } & \text { TC } & \text { Profit } \
\hline \$ 10 & 1 & 10 & 10 & 4 & \
9 & 2 & & & 8 & \
8 & 3 & & & 12 & \
7 & 4 & & & 16 & \
6 & 5 & & & 20 & \
5 & 6 & & & 24 & \
4 & 7 & & & 28 & \
3 & 8 & & & 32 & \
2 & 9 & & & 36 & \
1 & 10 & & & 40 & \
\hline
\end{array}$$ Refer to Exhibit 8-5. The demand schedule and cost schedule for a monopolist are provided. Which output level maximizes profit?

Question

Exhibit 8-5 Demand and cost data for a monopolist $$\begin{array} { | c | c | c | c | c | c | } 
\hline \text { Price } & \text { Quantity } & \text { TR } & \text { MR } & \text { TC } & \text { Profit } \
\hline \$ 10 & 1 & 10 & 10 & 4 & \
9 & 2 & & & 8 & \
8 & 3 & & & 12 & \
7 & 4 & & & 16 & \
6 & 5 & & & 20 & \
5 & 6 & & & 24 & \
4 & 7 & & & 28 & \
3 & 8 & & & 32 & \
2 & 9 & & & 36 & \
1 & 10 & & & 40 & \
\hline
\end{array}$$ Refer to Exhibit 8-5. The demand schedule and cost schedule for a monopolist are provided. Which output level maximizes profit?

Quizplus · Accepted Answer

To maximize profit, a monopolist produces where MR = MC. From the given data, we first need to calculate MR and MC for each level of output. MR can be calculated by the change in TR for each additional unit sold, and MC can be calculated by the change in TC for each additional unit produced.- For the first unit, MR = $10 (given), and MC cannot be calculated as there's no previous unit.- For the second unit, MR = TR at Q=2 - TR at Q=1 = $(9*2) - $(10*1) = $18 - $10 = $8. MC = TC at Q=2 - TC at Q=1 = $8 - $4 = $4.- Continuing this process, we find:  - At Q=3, MR = $(8*3) - $(9*2) = $24 - $18 = $6, MC = $12 - $8 = $4.  - At Q=4, MR = $(7*4) - $(8*3) = $28 - $24 = $4, MC = $16 - $12 = $4.  - Beyond Q=4, MR < MC, indicating that profit is maximized at Q=4 because it's the last point where MR ≥ MC.Therefore, the output level that maximizes profit is 4 units.

Exhibit 8-5 Demand and Cost Data for a Monopolist Refer to Exhibit 8-5