You are employed at an internship at the Pennsylvania Turnpike Commission. The Commission is considering building a toll road. It estimates that its demand curve is as shown below. Assume that the fixed cost of the road is $5 million per year. Maintenance costs (variable costs), which are the only other costs of the road, are also given in the table.

Tolls per trip ($)	Number of trips per year (in millions)	Total Revenue ($ million)	Marginal Revenue ($ million)	Maintenance Cost per year ($ million)	Total Cost ($ million	Marginal Cost ($ million)
11	0	????	----	0	5	---
10	1	????	????	2	????	2
9	2	18	????	5	????	????
8	3	????	????	10	????	????
7	4	????	4	19	????	????
6	5	????	????	32	37	????
5	6	????	????	50	????	????
4	7	????	-2.00	75	????	25

1. Given this data, complete the table. (12 pts.)
2. Using the optimal output rule (the profit maximizing decision rules), determine the profit-maximizing level of output and price. Explain your answer to your supervisor by referring to the completed data in the table. (5 pts.)

1. What is marginal revenue at the profit-maximizing output level? How does marginal revenue compare to price? Explain. (3 pts.)

1. Using Excel software, plot on one diagram the demand curve, marginal revenue curve and the marginal cost curve. Make your diagram large. Label all axis and curves appropriately! Be sure to include the data table, separate from #1, used to plot these graphs. (10 pts.)

Write down the letter to the one correct answer. (1 pt. @)

1. The equation MR= MC is commonly referred to as the optimal output rule. Who follows this rule: monopolies, competitive firms, both or neither?
2. a. Monopolies
3. b. Competitive firms
4. c. Both
5. d. Neither

1. A barrier to entry is:
2. A law established by the government to protect new industries.
3. A commitment on the part of big business to allow smaller companies to compete.
4. An obstacle that prevents additional workers from entering an industry, such as a union.
5. An obstacle that makes it difficult for new firms to enter a market.

1. Suppose a monopoly firm produces tables and can sell 10 tables per month at a price of $500 per table. In order to increase sales by one table per month, the monopolist must lower the price of its tables by $30 to $470 per table. The marginal revenue of the eleventh table is:
2. $170.
3. $-30.
4. $70.
5. $5170.

1. A patent is a government-created monopoly.

a. True

b. False

1. Examples of barriers to entry include:
2. Government regulation.
3. Lack of control over resource prices.
4. Diseconomies of scale.
5. Rising marginal cost.

1. Which of the following is true for a monopolist?
2. It faces a downward-sloping demand curve.
3. It must lower its price on all of its units in order to sell any additional units.
4. Its marginal revenue curve is below its demand curve.
5. All of the above.

1. The demand curve faced by a monopoly firm is:
2. Perfectly inelastic reflecting the firm's dominance of the market.
3. Perfectly elastic reflecting the fact that the monopolist can sell as much as it wants as the price it sets.
4. The same as the market demand for the product.
5. Below its marginal revenue curve.

1. Which of the following is true when a monopoly is producing the profit-maximizing quantity of output? More than one may be true.

a. Marginal revenue = Average cost

b. Total cost = Total revenue

c. Monopoly Price = Marginal cost

d. Marginal revenue = Marginal cost

e. A & C

f. C & D

1. Rapido, the shoe company, is so popular that it has monopoly power. It is selling 20 million shoes per year. The marginal cost of making extra shoes is quite low, and it does not change much if they produce more shoes. Rapido's marketing experts tell the CEO of Rapido that if it decreased prices by 20%, it would sell so many more shoes that profits would rise. If the expert is correct,at its current output, is MC=MR, is MC >MR, or is MC

a. MC=MR

b. MC greater than MR

c. MC less than MR

Figure 1.