To determine the profit-maximizing price and quantity as a monopolist, the company needs to find the price that all customers are willing to pay. In this case, the highest price that all customers are willing to pay is $70. Using this price and the maximum number of customers that the helicopter can accommodate, the company can calculate the total revenue, total cost, and profit. The profit-maximizing price is $70, and the company will make a profit of $480.
- The monopolist decides the price to charge based on what the market is willing to pay.
- To determine the profit-maximizing quantity, the monopolist looks for the point where marginal revenue equals marginal cost.
- In this case, the profit-maximizing quantity is the maximum number of customers that can fit in the helicopter, which is 8 (including the pilot).
- The prices that customers are willing to pay are given in the table, and the monopolist will charge the highest price that is still acceptable to all customers.
- From the table, the highest price that all customers are willing to pay is $70 (Orville's price).
- Using the profit-maximizing quantity of 8 and the price of $70, the monopolist can calculate the total revenue by multiplying the price by the quantity, which is $70 x 8 = $560.
- The monopolist can calculate the total cost by multiplying the quantity by the marginal cost, which is 8 x $10 = $80.
- Finally, to calculate the profit, the monopolist subtracts the total cost from the total revenue, which is $560 - $80 = $480.
- So, the profit-maximizing price is $70, and the monopolist will make a profit of $480.