Table 15-5
Dreher's Designer Shirt Company, a monopolist, has the following cost and revenue information. Assume that Dreher's is able to engage in perfect price discrimination.

-Refer to Table 15-5.What is the quantity that maximizes economic profit?

Question

Table 15-5
Dreher's Designer Shirt Company, a monopolist, has the following cost and revenue information. Assume that Dreher's is able to engage in perfect price discrimination.
 
-Refer to Table 15-5.What is the quantity that maximizes economic profit?

Quizplus · Accepted Answer

The monopolist can maximize economic profit by producing at the quantity where Marginal Revenue (MR) equals Marginal Cost (MC). In this case, the MC is given as $15 for all quantities, and the MR can be calculated using the formula: MR = 80 - 2Q, where Q is the quantity. Setting MR = MC, we get: 80 - 2Q = 15, which gives Q = 32.5. However, since the monopolist can engage in perfect price discrimination, they can charge each customer their maximum willingness to pay, which is given in the last column of the table. Therefore, at a quantity of 7, the monopolist can charge $61 per unit, which is the highest possible price. This results in an economic profit of $201.

Table 15-5 Dreher's Designer Shirt Company, a Monopolist, Has the Following Cost