Explore BrainMass
Share

Explore BrainMass

    Natural monopolist - profit maximizing price and quantity

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Suppose a natural monopolist has fixed costs of $24 and a constant marginal cost of $2. The demand
    for the product is as follows:

    Price (per unit) $10 $9 $8 $7 $6 $5 $4 $3 $2 $1

    Quantity demanded
    (units per day) 0 2 4 6 8 10 12 14 16 18

    Under these conditions,
    (a) What price and quantity will prevail if the monopolist isn't regulated
    (a1) price _______
    (a2) quantity _______
    (b) What price-output combination would exist with efficient pricing (MC = p )?
    (b1) price _______
    (b2) quanitity _______
    (c) What price-output combination would exist with profit regulation (zero economic profits)?
    (c1) price _______
    (c2) quanitity _______

    Illustrate your answers on the graph.

    © BrainMass Inc. brainmass.com October 10, 2019, 2:10 am ad1c9bdddf
    https://brainmass.com/economics/general-equilibrium/natural-monopolist-profit-maximizing-price-and-quantity-365996

    Solution Preview

    See the attached file. Thanks

    Price Quantity Total Revenue Marginal Revenue Fixed Cost Variable Cost Total Cost Marginal Cost Profit
    $10.00 0 $0.00 $24.00 $- $24.00 ($24.00)
    $9.50 1 $9.50 $9.00 $24.00 $2.00 $26.00 $2.00 ($16.50)
    $9.00 2 $18.00 $8.00 $24.00 $4.00 $28.00 $2.00 ($10.00)
    $8.50 3 $25.50 $7.00 $24.00 $6.00 $30.00 $2.00 ($4.50)
    $8.00 4 $32.00 $6.00 $24.00 $8.00 $32.00 $2.00 $0.00
    $7.50 5 $37.50 $5.00 $24.00 $10.00 $34.00 $2.00 $3.50
    $7.00 6 $42.00 $4.00 $24.00 $12.00 $36.00 $2.00 $6.00
    $6.50 ...

    Solution Summary

    This post calculates the profit maximizing price and quantity for a natural monopolist when the demand curve and cost curves are given. This post specifically shows how to calculate profit maximizing price and quantity when monopolist isn't regulated, with efficient pricing (MC = p ) and with profit regulation (zero economic profits)?

    $2.19