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Monopoly and Competitive Market Analysis

The document discusses the market structure of monopolies, providing various scenarios involving producers of hair bands and novels, along with calculations of total revenue, marginal revenue, and profit maximization. It also includes a case study on Dorji Rockabilly's CD sales and examines competitive market dynamics through total cost and revenue analysis. Key concepts include the downward-sloping demand curve, the relationship between marginal revenue and price, and the conditions for profit maximization.

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202173rin
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8 views2 pages

Monopoly and Competitive Market Analysis

The document discusses the market structure of monopolies, providing various scenarios involving producers of hair bands and novels, along with calculations of total revenue, marginal revenue, and profit maximization. It also includes a case study on Dorji Rockabilly's CD sales and examines competitive market dynamics through total cost and revenue analysis. Key concepts include the downward-sloping demand curve, the relationship between marginal revenue and price, and the conditions for profit maximization.

Uploaded by

202173rin
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

UNIT 6 MARKET STRUCTURE

Monopoly market

Q1. Suppose a producer is a single-price monopolist in the market for hair band. The demand schedule
for hair band is shown in the accompanying table. The producer is having constant marginal cost of Nu.
20.
Price Quantity Demanded
100 0
80 1
60 3
40 6
20 9
0 12

i. Calculate total revenue and its marginal revenue.


ii. From your calculation, draw the demand curve and the marginal revenue curve.
iii. Explain why Producer faces a downward-sloping demand curve.
iv. Explain why the marginal revenue from an additional band sale is less than the price of the
bands.
v. Add the marginal cost curve to your diagram from part (i) and determine which quantity
maximizes producer’s profit and which price producer will charge.

Q2. A monopolist publisher faces the following demand schedule for the novel who produces at a
constant marginal cost of Nu. 10.

Price Quantity Demanded


20 0
18 1
16 2
14 3
12 4
10 5

i. From the above schedule, compute firm’s marginal revenue. How does marginal revenue
compare to the price? Explain.
ii. What quantity and price would a profit-maximizing publisher choose?
iii. Draw a clearly labeled graph indicating the firm’s the marginal-revenue, marginal-cost, and AR.
At what quantity do the marginal-revenue and marginal-cost curves cross? What does this
signify?
iv. Suppose the publisher was not profit maximizing but was concerned with maximizing economic
efficiency. What price would it charge for the book?
Q3. The following demand function and total function of a monopolist are given. Calculate his marginal
revenue and marginal cost. At what level of output, the monopolist will be in equilibrium? What price
will be set at the equilibrium output and calculate total profits made by him.
Price (Nu.) Qty. sold Total cost (Nu)
15 1 12
14 2 22
13 3 31
12 4 39
11 5 46
10 6 54
9 7 64
8 8 75

Q4. Dorji Rockabilly has just finished recording his latest CD. His record company’s marketing
department determines that the demand for the CD is as follows:
Price (Nu.) Number of CDs
24 10,000
22 20,000
20 30,000
18 40,000
16 50,000
14 60,000
The company can produce the CD with no fixed cost and a variable cost of Nu. 8 per CD.
I. Find total revenue for quantity equal to 10,000, 20,000, and so on. What is the marginal revenue
for each 10,000 increase in the quantity sold?
II. What quantity of CDs would maximize profit? What would the price be? What would the profit
be?
III. If you were Dorji’s agent, what recording fee would you advise Dorji to demand from the record
company? Why?

Competitive market

Q5. Consider total cost and total revenue given in the following table:
Quantity 0 1 2 3 4 5 6 7
Total cost (Nu.) 8 9 10 11 13 19 27 37
Total revenue (Nu.) 0 8 16 24 32 40 48 56
a. Calculate profit for each quantity. How much should the firm produce to maximize profit?
b. Calculate marginal revenue and marginal cost for each quantity. Graph them. At what quantity do
these curves cross?
c. Can you tell whether this firm is in a competitive industry? If so, can you tell whether the industry is in
a long-run equilibrium?

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