Question 7: The market demand curve for a commodity and the total cost for a monopoly firm producing the commodity are given in the schedules below.
|
Quantity
|
0
|
1
|
2
|
3
|
4
|
5
|
6
|
7
|
8
|
|
Price
|
52
|
44
|
37
|
31
|
26
|
22
|
19
|
16
|
13
|
|
Quantity
|
0
|
1
|
2
|
3
|
4
|
5
|
6
|
7
|
8
|
|
Price
|
10
|
60
|
90
|
100
|
102
|
105
|
109
|
115
|
125
|
Use the information given to calculate the following:
(a) The MIR and MC schedules
(b) The quantities for which MIR and MC are equal
(c) The equilibrium quantity of output and the equilibrium price of the commodity
(d) The total revenue, total cost and total profit in the equilibrium
Answer:
(a)
|
Quantity
|
Price/AR
|
TR = P * Q
|
MR = TRn- TRn-1
|
TC (Rs)
|
MC = TCn-TCn-1
|
|
0
|
52
|
0
|
-
|
10
|
-
|
|
1
|
44
|
44
|
44
|
60
|
50
|
|
2
|
37
|
74
|
30
|
90
|
40
|
|
3
|
31
|
93
|
19
|
100
|
10
|
|
4
|
26
|
104
|
11
|
102
|
2
|
|
5
|
22
|
110
|
6
|
105
|
3
|
|
6
|
19
|
114
|
4
|
109
|
4
|
|
7
|
16
|
112
|
-2
|
115
|
6
|
|
8
|
13
|
104
|
-8
|
125
|
10
|
(b)MR equals MC at the 6th unit of output i.e., 4.
(c) At equilibrium, MR equals MC, and right here MR equals MC on the sixth unit of output, wherein MC is upward sloping. Hence, the equilibrium price is Rs 19.
(d) TR = Rs 114
TC =Rs 109
general earnings = TR - TC
= Rs 114 – 109 = Rs five
Hence, income is the same as Rs 5 .
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