**Monopoly Pricing and Profit Maximization**In the graph provided, we observe the demand curve, marginal revenue (MR) function, and the marginal cost (MC) function for a monopoly. The key details are summarized as follows:- **Demand Curve (P):** This is represented by the blue line. It shows the relationship between the price (P) and quantity (Q). The curve is downward sloping, indicating that as the quantity increases, the price decreases.- **Marginal Revenue (MR) Curve:** This is represented by the red line. The MR curve lies below the demand curve and also slopes downwards. This illustrates the concept that to sell additional units, the monopoly must lower the price, which reduces the additional revenue generated from selling one more unit.- **Marginal Cost (MC) and Average Cost (AC) Curve:** Both MC and AC are represented by the green dashed line, indicating that MC(Q) = AC(Q) for all Q. This implies constant marginal and average costs.### Analysis and Calculation Instructions:**Objective:**Calculate the monopoly's profits if the monopoly charges the single profit-maximizing price.**Steps:**1. **Determine the Profit-Maximizing Output Level:** - Locate the quantity (Q) where the Marginal Revenue (MR) curve intersects the Marginal Cost (MC) curve. This is the point where MR = MC. According to the graph, this intersection occurs around a quantity of 135 units.2. **Find the Corresponding Price:** - Once the profit-maximizing output is identified, go vertically up to the demand curve to find the corresponding price the monopoly will charge. For Q = 135 units, the price is approximately $72.3. **Calculate Total Revenue (TR):** - Total Revenue is found by multiplying the profit-maximizing output level by the price at that output level. - $TR = P \times Q = 72 \times 135 = 9,720$4. **Determine Total Cost (TC):** - Since MC = AC in this case, Total Cost can be calculated as $TC = AC \times Q$. Given AC is constant at $60 for any quantity. - $TC = 60 \times 135 = 8,100$5. **Compute Profit:** - Profit is found by subtracting Total Cost (TC) from Total Revenue (TR

Monopoly is the form of market where a single seller sale the product at higher price and produce…

180 168 156 144 132 120 108 96 84 72 60 48 36 24 12 0 135 180 225 270 315 360 405 450 495 540 585 630 675 Quantity -P MRMC AC monopoly face the following demand, marginal revenue and marginal cost functions ote that in this case MC(Q)= AC(Q) for all Q. alculate the monopoly's profits if the monopoly charges the single profit maximizing price Price 19 8

180 168 156 144 132 120 108 96 84 72 60 48 36 24 12 0 135 180 225 270 315 360 405 450 495 540 585 630 675 Quantity -P MRMC AC monopoly face the following demand, marginal revenue and marginal cost functions ote that in this case MC(Q)= AC(Q) for all Q. alculate the monopoly's profits if the monopoly charges the single profit maximizing price Price 19 8

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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