Question

In: Economics

1. Suppose a company called Hongyu F. Inc. is selling a product known as “Josue’s Giant...

1.

Suppose a company called Hongyu F. Inc. is selling a product known as “Josue’s Giant Birthday Candles”. The company has the following table:

q           P             TR         TC         Profit         MR         MC         ∆Profit   

0           12                             4                               ---           ---               ---

1           11                             7                                                                  

2           10                                               8                                        

3             9                                                                                                  3                  

4             8                                                                               5                    

5             7                            29

What is the quantity produced?

a. 0

b. 2

c. 4

d. 5

2.

Again, suppose a company called Hongyu F. Inc. is selling a product known as “Josue’s Giant Birthday Candles”. As shown above, the company has the following table:

q           P             TR         TC         Profit         MR         MC         ∆Profit   

0           12                             4                               ---           ---               ---

1           11                           7                                                                  

2           10                                               8                                        

3             9                                                                                                  3                  

4             8                                                                               5                    

5             7                           29

Given this information from the previous problem, what is the relevant market structure?

a. Monopoly

b. Competitive

c. Slava-opoly

d. Raquel-opoly

3. Suppose a firm in the competitive market faces the following cost and revenue conditions: MC=$10; MR=$12. The firm should…

a. change nothing.

b. increase output.

c. increase price.

d. decrease output.

Solutions

Expert Solution

1.Ans: c) 4

Explanation:

Under imperfect competition , the profit maximization condition is where marginal revenue equals marginal cost ( MR = MC).

q P TR TC Profit MR MC ∆Profit
0 12 0 4 -4 --- --- ---
1 11 11 7 4 11 3 8
2 10 20 12 8 9 5 4
3 9 27 16 11 7 4 3
4 8 32 21 11 5 5 0
5 7 35 29 6 3 8 -5

TR = Price * Quantity

Profit = TR - TC

MR = Change in TR / Change in q

MC = Change in TC / Change in q

2.Ans: a) Monopoly

Explanation:

Under perfectly competitive market structure , firm is the price taker and industry is the price maker. It means the firm is not able to change the market price.

Under monopoly market structure, firm is the price searcher. Firm can change the price in order to earn more profit.

3.Ans: b) increase output

Explanation:

When MR > MC , then the firm is selling less than the profit-maximizing output of a good. So the firm can make higher profits by expanding its quantity of output.

Rahul Sunny answered 2 years ago
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