If this monopolist can price discriminate, what is the value of its profit?
Understand the Problem
The question is asking for the calculation of the profit value for a monopolist that can price discriminate, given the provided demand and marginal revenue curves along with average total cost information shown in the attached graph.
Answer
The profit value for the monopolist is $10$.
Answer for screen readers
The value of the monopolist's profit when price discriminating is 10.
Steps to Solve
- Identify Key Values from the Graph
From the graph, we need to identify the quantity where the monopolist maximizes profit, which is at the intersection of the Marginal Revenue (MR) and Marginal Cost (MC) curves. According to the graph, this occurs at a quantity of $Q = 5$.
- Determine the Price at Maximized Quantity
Now, we need to find the price associated with this quantity. Looking at the demand curve (D), when $Q = 5$, the price is $P = 10$.
- Calculate Total Revenue (TR)
Total Revenue can be calculated as follows: $$ TR = P \times Q = 10 \times 5 = 50 $$
- Determine Average Total Cost (ATC)
From the graph, the Average Total Cost (ATC) at the quantity of $Q = 5$ is $ATC = 8$.
- Calculate Total Cost (TC)
Total Cost can be calculated using the formula: $$ TC = ATC \times Q = 8 \times 5 = 40 $$
- Find Profit
Profit is calculated as the difference between Total Revenue (TR) and Total Cost (TC): $$ Profit = TR - TC = 50 - 40 = 10 $$
The value of the monopolist's profit when price discriminating is 10.
More Information
In monopolistic markets, the ability to price discriminate allows firms to charge different prices for the same good based on consumers' willingness to pay. This often leads to increased profits compared to standard pricing.
Tips
- Forgetting to distinguish between Total Revenue and Total Cost can lead to incorrect profit calculations.
- Misreading the graph to determine quantities or prices accurately.
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