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Ch15Solutions

# Ch15Solutions - Homework 8 Chapter15 Solutions 1 a We would...

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Price per carat (\$) Quantity of Diamonds (thousands) Total Revenue Marginal Revenue 10,000 75 750000 - 9,000 125 1125000 7500 8,000 175 1400000 5500 7,000 225 1575000 3500 6,000 275 1650000 1500 5,000 325 1625000 -500 4,000 375 1500000 -2500 Table 10a b) The revenue maximizing quantity is determined where marginal revenue is equal to zero. In the graph above, this corresponds to approximately 288,000 diamonds. At a quantity of 288,000 diamonds, consumers are willing to pay a price of approximately \$5,250. In the table produced in part (a), we observe that this is close to the price of \$6,000, which corresponds to the greatest revenue in the table. As the monopoly sells more diamonds, say over 288,000, then the marginal revenue becomes negative, implying that revenue begins to fall. This is because the gains from selling more diamonds do not offset the revenue losses from charging a lower price. We observe
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