Reference no: EM131281041
This question examines the pure monopoly market for wonky widgets. You will use a market demand curve to identify the total revenue associated with selling a particular quantity and the marginal revenue earned from each unit and use the marginal cost of producing a wonky widget to determine how many widgets a monopolist should produce and sell. Lastly, you will determine how the monopoly quantity is affected when the marginal cost rises.
Wonky Widgets are produced and sold by a single firm, Walter's Wonky Widgets. The monopolist faces a marginal revenue characterized by the function:
MR = 24 - 2Q
where Q is the number of wonky widgets that the monopolist produces and sells and MR represents the marginal revenue earned from producing and selling each additional unit. The table below will help you identify and organize different relationships between quantity, marginal revenue, and total revenue.
Quantity
(widgets)Marginal
Revenue
(dollars)Total Revenue
(dollars)
0-----$ 0
1
2$ 42
3
4$16
5
6 $102
7
8 $8
Task 1: In the table above, identify the marginal revenue and total revenue that Walter's Wonky Widgets earns when it produces and sells each quantity of widgets.
Task 2: Suppose that the marginal cost of producing and selling a widget is $10. What quantity of widgets maximizes Walter's profits?
Task 3: Suppose that the marginal cost of producing and selling a widget rises to $14. What quantity of widgets maximizes Walter's profits?
Task 4: Suppose that the marginal cost of producing and selling a widget rises to $18. What quantity of widgets maximizes Walter's profits?
Task 5: Based on the answers you have provided above, what conclusion can you draw regarding the effect of marginal cost increases on the quantity of output in a monopoly market?
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