Exercise on Monopoly's Revenue: Solutions
Virgin Oil Star is the only seller of virgin oil in the city.
The table below shows the market demand for virgin oil.
Question-1: Fill in the question marks spaces.
Question-2: What is the relation between P and AR? And between P and MR?
| Q | P | TR | AR | MR |
| 0 | $11 | ????? | n/a | ------ |
| 1 | $10 | ????? | ????? | ????? |
| 2 | $8.50 | ????? | ????? | ????? |
| 3 | $7 | ????? | ????? | ????? |
| 4 | $5.25 | ????? | ????? | ????? |
| 5 | $4 | ????? | ????? | ????? |
Solution:
| Q | P | TR = P × Q | AR = TR / Q | MR = ΔTR / ΔQ |
| 0 | $11 | $0 | n/a | ------ |
| 1 | $10 | $10 | $10 | $10 |
| 2 | $8.50 | $17 | $8.5 | $7 |
| 3 | $7 | $21 | $7 | $4 |
| 4 | $5.25 | $21 | $4 | $0 |
| 5 | $4 | $20 | $4 | −$1 |
Q: What is the relation between P and AR?
Answer: P = AR, same as for a competitive firm.
Q: What is the relation between P and MR?
Answer: MR < P, whereas MR = P for a competitive firm.
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Date of last modification: 2019