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    Maximizing Profits for a Widget Monopoly

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    Willy's Widgets, a monopoly, faces the following demand schedule (sales in widgets per month):

    Price Quantity demanded
    $20 40
    $30 35
    $40 30
    $50 25
    $60 20
    $70 15
    $80 10
    $90 5
    $100 0

    Calculate marginal revenue over each interval in the schedule, for example, between Q = 40 and Q = 35. Recall that marginal revenue is the added revenue from an additional unit of production/sales and assume that MR is constant within each interval.

    If marginal cost is constant at $20 and fixed cost is $100, what is the profit-maximizing level of output? (Choose one of the specific levels of output from the schedule.) What is the level of profit? Explain your answer using marginal cost and marginal revenue.

    Repeat the exercise for MC = $40.

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    Solution Summary

    Detailed example of using the MR=MC method to maximize profits for Willy's Widgets.