Suppose the table below describes the relationship between price and quantity demanded for a monopolist. $$\begin{array} { | c | c | }
\hline \text { Quantity } & \text { Price } \
\hline 1 & \$ 10 \
\hline 2 & \$ 9 \
\hline 3 & \$ 8 \
\hline 4 & \$ 7 \
\hline 5 & \$ 6 \
\hline 6 & \$ 5 \
\hline 7 & \$ 4 \
\hline 8 & \$ 3 \
\hline
\end{array}$$ If the marginal cost of producing each unit of output is $5, then this monopolist maximizes its profit by charging ______ per unit.

Question

Suppose the table below describes the relationship between price and quantity demanded for a monopolist. $$\begin{array} { | c | c | } 
\hline \text { Quantity } & \text { Price } \
\hline 1 & \$ 10 \
\hline 2 & \$ 9 \
\hline 3 & \$ 8 \
\hline 4 & \$ 7 \
\hline 5 & \$ 6 \
\hline 6 & \$ 5 \
\hline 7 & \$ 4 \
\hline 8 & \$ 3 \
\hline
\end{array}$$ If the marginal cost of producing each unit of output is $5, then this monopolist maximizes its profit by charging ______ per unit.

Quizplus · Accepted Answer

To determine the profit-maximizing price, we need to find the quantity at which the marginal cost equals marginal revenue. Since this is a monopolist, the marginal revenue curve will lie below the demand curve. We can calculate the marginal revenue by finding the change in total revenue corresponding to a one-unit increase in quantity.

Using the table:

Marginal Revenue:
Between 1 and 2: $9 - $10 = -$1
Between 2 and 3: $8 - $9 = -$1
Between 3 and 4: $7 - $8 = -$1
Between 4 and 5: $6 - $7 = -$1
Between 5 and 6: $5 - $6 = -$1
Between 6 and 7: $4 - $5 = -$1
Between 7 and 8: $3 - $4 = -$1

The marginal revenue is constant at -$1.

The monopoly's profit-maximizing quantity is the one at which marginal cost equals marginal revenue. In this case, since the marginal cost is $5 for all units of output, the profit-maximizing quantity is 5.

At a quantity of 5, the demand curve (which gives the price) intersects the marginal cost curve (which gives the cost) at a price of $6.

Therefore, the monopolist should charge $6 per unit to maximize its profits.

Suppose the Table Below Describes the Relationship Between Price and Quantity