Problem 2) A monopolist faces the following demand and cost schedules:

Quantity Price Total cost

0 70 30

1 64 96

2 58 120

3 52 140

4 46 164

5 40 192

6 34 224

7 28 262

8 22 308

9 16 370

Answer the following questions:

(a) Which formulas would you use to compute, for each level of quantity and price: (i) the total revenue (ii) the marginal revenue and (iii) the marginal cost?

(b) Compute total revenue, marginal revenue and marginal cost for each combination of quantity and price

(c) What do we notice about the behaviour of the marginal cost as quantity increases? What might explain this behaviour?

(d) What quantity should the monopolist produce in order to maximize profit? What is the reasoning that you have followed in order to arrive at this outcome?

(e) What is the monopolist's profit if it produces the profit-maximizing quantity, and what formula did you use to compute it?