The local widget monopolist is retiring. He owns the only machine that produces widgets. He offers to sell the widget machine to you for $52,500. After you purchase the machine you can produce as many widgets as you want at no additional cost. You know that the long run demand for widgets is as follows:
P = 600 - 2Q where P is the price of widgets and Q is the amount of widgets produced.
Question should you buy the widget machine? Why?
Is this correct:
I set up the following table: (I'm sure there is some formula you can use)
P Q TR MR AR
598 1 598 598 598
596 2 1192 594 596
300 150 45000 2 300
298 151 44998 -2 298
You should not buy the widget machine because you can only produce 150 at $300 for a total of $45,000. By producing 151 widgets total revenue and marginal revenue begin to decrease. You will have a loss of $7,500 ($52,500 - $45,000)
Your answer is 100% correct. If you buy the machine, you ...