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	Economics 14/e McConnell
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24-4 Use the demand schedule that follows to calculate total revenue and marginal revenue at each quantity. Plot the demand total-revenue and marginal-revenue curves and carefully explain the relationships between them. Explain why the marginal revenue of the fourth unit of output is $3.50 even though its price is $5.00. Use Chapter 20’s total-revenue test for price elasticity to designate the elastic and inelastic segments of your graphed demand curve. What generalization can you make as to the relationship between marginal revenue and elasticity of demand? Suppose the marginal cost of successive units of output were zero. What output would the profit-seeking firm produce? Finally use your analysis to explain why a monopolist would never produce in the inelastic region of demand.

24-5 Suppose a pure monopolist is faced with the demand schedule shown below and the same cost data as the competitive producer discussed in question 4 at the end of Chapter 23. Calculate the missing total- and marginal-revenue amounts and determine the profit-maximizing price and output for this monopolist. What is the monopolist’s profit? Verify your answer graphically and by comparing total revenue and total cost.

24-6 If the firm described in question 5 could engage in perfect price discrimination what would be the level of output? Of profits? Draw a diagram showing the relevant demand marginal-revenue average-total-cost and marginal-cost curves and the equilibrium price and output for a nondiscriminating monopolist. Use the same diagram to show the equilibrium position of a monopolist able to practice perfect price discrimination. Compare equilibrium outputs total revenues economic profits and consumer prices in the two cases. Comment on the economic desirability of price discrimination.

24-11 It has been proposed that natural monopolists should be allowed to determine their profit-maximizing outputs and prices and then government should tax their profits away and distribute them to consumers in proportion to their purchases from the monopoly. Is this proposal as socially desirable as requiring monopolists to equate price with marginal cost or average total cost?

24-4 Total revenue in order from Q = 0: $6.50 $12.00; $16.50; $20.00; $22.50; $24.00; $24.50; $24.00; $22.50. Marginal revenue in order from Q = 1: $6.50; $5.50; $4.50; $3.50; $2.50; $1.50; $.50; 2$1.50. See the accompanying graph. Because TR is increasing at a diminishing rate MR is declining. When TR turns downward MR becomes negative. Marginal revenue is below D because demand is not perfectly elastic. Four units sell for $5.00 each but three of these four could have been sold for $5.50 had the monopolist been satisfied to sell only three. Having decided to sell four the monopolist had to lower the price of the first three from $5.50 to $5.00 sacrificing $.50 on each for a total of $1.50. This "loss" of $1.50 explains the difference between the $5.00 price obtained on the fourth unit of output and its marginal revenue of $3.50. Demand is elastic from P = $6.50 to P = $3.50 a range where TR is rising. The curve is of unitary elasticity at P = $3.50 where TR is at its maximum. The curve is inelastic from then on as the price continues to decrease and TR isfalling. When MR is positive demand is elastic. When MR is zero demand is of unitary elasticity. When MR is negative demand is inelastic. If MC is zero the monopolist should produce 7 units where MR is also zero. It would never produce where demand is inelastic because MR is negative there while MC is positive.
24-5 Total revenue data top to bottom in dollars: 0; 100; 166; 213; 252; 275; 288; 294; 296; 297; 290. Marginal revenue data top to bottom in dollars: 100; 66; 47; 39; 23; 13; 6; 2; 1; 27. Price = $63; output = 4; profit = $42 [= 4($63 - 52.50)]. Your graph should have the same general appearance as Figure 24-4. At Q = 4 TR = $252 and TC = $210 [= 4($52.50)].
24-6 Perfect price discrimination: Output = 6. TR would be $420 (= $100 + $83 + $71 + $63 + $55 + $48). TC would be $285 [= 6($47.50)]. Profit would be $135 (= $420 - $285). Your single diagram should combine Figures 24-8a and 24-8b in the chapter. The discriminating monopolist faces a demand curve which is also its MR curve. It will sell the first unit at f in Figure 24-8b and then sell each successive unit at lower prices (as shown on the demand curve) as it moves to Q₂ units where D (= MR) = MC. Discriminating monopolist: Greater output; total revenue and profits. Some consumers will pay a higher price under discriminating monopoly than with nondiscriminating monopoly; others a lower price. Good features: greater output and improved allocative efficiency. Bad feature: more income is transferred from consumers to the monopolist.
24-11 No the proposal does not consider that the output of the natural monopolist would still be at the suboptimal level where P . MC. Too little would be produced and there would be an underallocation of resources. Theoretically it would be more desirable to force the natural monopolist to charge a price equal to marginal cost and subsidize any losses. Even setting price equal to ATC would be an improvement over this proposal. This fair-return pricing would allow for a normal profit and ensure a greater production than the proposal would.

Price	Quantity demanded	Total revenue	Marginal revenue
$115	0	$_____	$_____
100	1	_____	_____
83	2	_____	_____
71	3	_____	_____
63	4	_____	_____
55	5	_____	_____
48	6	_____	_____
42	7	_____	_____
37	8	_____	_____
33	9	_____	_____
29	10	_____	_____

Price (P)	Quantity Demanded (Q)	Price (P)	Quantity Demanded (Q)
$7.00	0	$4.50	5
6.50	1	4.00	6
6.00	2	3.50	7
5.50	3	3.00	8
5.00	4	2.50	9

Chapter 24 - Pure Monopoly