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Download Monopolies, Marginal Revenue, and Profit Maximization
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Reproducible Sheets Monopolies, Marginal Revenue, and Profit Maximization RS 7-5 Congratulations! You have bought out all competitors and secured a government patent so that no other firms can produce widgets. Yours is the only enterprise with the legal right to manufacture and sell this imaginary product. Below are your production and market realities as a monopolist. The amounts are small in order to simplify your calculations. Questions 1. Calculate the missing values in order to complete the data table. 2. How many widgets should you manufacture and sell in order to maximize profits? Explain. 3. On Graph A, the incremental steps of the marginal revenue curve and the marginal cost curve have been plotted, based on the data in the table. Smooth out the slope of the marginal revenue curve by drawing a line that cuts the flat and the steep part of each step precisely in half. Label this line that you have drawn as the “marginal revenue curve.” Repeat the same procedure to smooth out the incremental steps of the marginal cost curve. Label this as the “marginal cost curve.” 4. Plot and label the demand curve for your product. Compare the slopes of the demand and marginal revenue curves. 5. At what production level does the smooth marginal revenue curve intersect the smooth marginal cost curve? Describe the profit made at this production level. © Oxford University Press (Canada) 2003. Permission to reproduce for classroom use restricted to schools purchasing Economics Now. Reproducible Sheets Monopolies, Marginal Revenue, and Profit Maximization (continued) RS 7-5 6. Explain why the marginal cost curve is equal to the supply curve for a monopoly. 7. Explain how the market price is determined on the graph for the production level that will maximize profit. 8. Plot the total cost curve, the total revenue curve, and the total profit curves on Graph B. Explain how total concepts can be used to confirm the profit-maximization point that has been previously determined by marginal analysis. 9. Use Graph A to explain what would happen to the quantity of widgets available to consumers and the market price if the widget market were to become a competitive market with several producers. © Oxford University Press (Canada) 2003. Permission to reproduce for classroom use restricted to schools purchasing Economics Now.
