Exercise on Monopoly's Revenue: Solutions

Consider the following

Virgin Oil Star is the only seller of virgin oil in the city.
The table below shows the market demand for Virgin Oil.

Questions:

  1. Fill in the question marks
  2. What is the relation between P and AR? And between P and MR?


market demand for Virgin Oil
Q P TR AR MR
0 $11 ????? n/a ------
1 $10 ????? ????? ?????
2 $8.50 ????? ????? ?????
3 $7 ????? ????? ?????
4 $5.25 ????? ????? ?????
5 $4 ????? ????? ?????


Solution:
market demand for Virgin Oil - Solution
QPTR = P × QAR = TR / QMR = 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


Question 1: What is the relation between P and AR?
Answer: P = AR, same as for a competitive firm.
Question 2: What is the relation between P and MR?
Answer: MR < P, whereas MR = P for a competitive firm.


For more details, please contact me here.