Answer the question on the basis of the following information for a pure monopolist: $$500300250200150100\begin{array}{ccc}\begin{array}{ccc}\\\text { Output } & & \text { Total Cost } \\\hline0 & & \$ 250 \\1 & & 260 \\2 & & 290 \\3 & & 350 \\4 & & 480 \\5 & & 700\end{array}\begin{array}{l}\text { Product }\\\begin{array}{c}\text { Price } \\\hline \$ 500 \\300 \\250 \\200 \\150 \\100\end{array}\end{array}\end{array}$ If the given profit-maximizing monopolist is able to price discriminate,charging each customer the price associated with each given level of output,how many units will the firm produce?

A) 2.
B) 3.
C) 4.
D) 5.

Question

Answer the question on the basis of the following information for a pure monopolist:

$500300250200150100\begin{array}{ccc}\begin{array}{ccc}\\\text { Output } & & \text { Total Cost } \\\hline0 & & \$ 250 \\1 & & 260 \\2 & & 290 \\3 & & 350 \\4 & & 480 \\5 & & 700\end{array}\begin{array}{l}\text { Product }\\\begin{array}{c}\text { Price } \\\hline \$ 500 \\300 \\250 \\200 \\150 \\100\end{array}\end{array}\end{array}

If the given profit-maximizing monopolist is able to price discriminate,charging each customer the price associated with each given level of output,how many units will the firm produce?

A) 2.
B) 3.
C) 4.
D) 5.

JADIAMOND THOMAS · Accepted Answer

Final Answer : C, Explanation :   To maximize profit, a monopolist produces where marginal revenue (MR) equals marginal cost (MC). We can calculate MR by taking the change in total revenue (TR) from selling an additional unit of output.  Output   Total Cost   Price   Total Revenue   Marginal Revenue   Marginal Cost  0 $ 250 − − − − 1 260 500 500 500 − ( − ) = 500 260 − 250 = 10 2 290 300 600 600 − 500 = 100 290 − 260 = 30 3 350 250 750 750 − 600 = 150 350 − 290 = 60 4 480 200 800 800 − 750 = 50 480 − 350 = 130 5 700 150 750 750 − 800 = − 50 700 − 480 = 220 \begin{array}{ccc} \begin{array}{ccc} \ 	ext { Output }  &   &  	ext { Total Cost }  &   &  	ext { Price }  &   &  	ext { Total Revenue }  &   &  	ext { Marginal Revenue }  &   &  	ext { Marginal Cost } \ \hline 0  &   &  \$ 250  &   &  -  &   &  -  &   &  -  &   &  - \ 1  &   &  260  &   &  500  &   &  500  &   &  500-(-) = 500  &   &  260-250 = 10 \ 2  &   &  290  &   &  300  &   &  600  &   &  600-500 = 100  &   &  290-260 = 30 \ 3  &   &  350  &   &  250  &   &  750  &   &  750-600 = 150  &   &  350-290 = 60 \ 4  &   &  480  &   &  200  &   &  800  &   &  800-750 = 50  &   &  480-350 = 130 \ 5  &   &  700  &   &  150  &   &  750  &   &  750-800 = -50  &   &  700-480 = 220 \end{array} \end{array}  Output  0 1 2 3 4 5 ​ ​  Total Cost  $250 260 290 350 480 700 ​ ​  Price  − 500 300 250 200 150 ​ ​  Total Revenue  − 500 600 750 800 750 ​ ​  Marginal Revenue  − 500 − ( − ) = 500 600 − 500 = 100 750 − 600 = 150 800 − 750 = 50 750 − 800 = − 50 ​ ​  Marginal Cost  − 260 − 250 = 10 290 − 260 = 30 350 − 290 = 60 480 − 350 = 130 700 − 480 = 220 ​ ​ ​ When the monopolist is able to price discriminate, they can charge a different price for each unit sold. To find the profit-maximizing output level, we need to consider the marginal revenue and cost at each price level.At a price of $500, the monopolist will only sell one unit, since the marginal cost of producing a second unit is higher than the price.At a price of $300, the monopolist will produce up to 2 units, since the marginal revenue of the second unit is still greater than the marginal cost.At a price of $250, the monopolist will produce up to 3 units, since the marginal revenue of the third unit is still greater than the marginal cost.At a price of $200, the monopolist will produce up to 4 units, since the marginal revenue of the fourth unit is still greater than the marginal cost.At a price of $150, the monopolist will produce up to 5 units, since the marginal revenue of the fifth unit is still greater than the marginal cost.Therefore, the answer is C) 4.

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