Price Quantity
$10 1
$9 2
$8 3
$7 4
$6 5
$5 6
$4 7
$3 8
$2 9
$1 10
$0 11
Use the information to answer the following questions:
A. If a monopolist charges a price of $6 per unit, how much total revenue will they earn? If a monopolist charges a price of $7 per unit, how much total revenue will they earn? What happens to total revenue when they increase the price from $6 to $7, does it increase or decrease and by how much?
B. Calculate both the price effect and the quantity effect that would occur when the monopolist increases the price from $6 to $7 (work must be shown in order to earn full credit. Be careful about the sign). What does this indicate about the price elasticity of demand along this portion of the demand curve, is it elastic or inelastic? Briefly explain your reasoning.
C. Add together the price effect and quantity effect from part (B) and compare this to the change in total revenue that you found in part (A). Are they the same or different? If they are different, briefly explain why they are different. If they are the same, briefly explain why they would be the same.
D. If the marginal cost of producing this good is constant at $3 per unit, how many units would a monopolist produce in order to maximize profits? Briefly explain how you derived your answer.