Question

Below is a table that represents price, output, cost, revenue and profit data for a monopoly.

Price	Q	TR	MR	MC	TC	Profit
$290	0		---	---		-$1,000
$280	1			$100
$270	2				$1,180
$260	3			$60
$250	4
$240	5			$60
$230	6				$1,420
$220	7				$1,540
$210	8
$200	9				$1,980

(a) Fill in the missing numbers for Firm B. Note: there are no numbers for MR and MC when Q=0. When output level is 4, the Average Total Cost is $320. When output level is equal to 8 the Total Variable Cost is equal to $700.

(b) At which unit of output does this Firm first start to experience Diminishing Marginal Returns (also know as Decreasing Marginal Returns). Explain your answer.

(c) Determine the TFC for Firm B. Explain how you got your answer.

(d) If this firm is to produce in the Short Run, then determine the output where this firm maximizes its profits or minimizes its loss. Using MC and MR, explain your answer.

(e) ) If this firm is to produce in the Short Run, then determine its best profit number.

(f) If this firm shuts down in the Short Run, what is this firm's profit number?

(g) Will this firm produce or shut down in the short run? Please explain your answer.

(h) What will this firm do in the long run: stay or leave? Please explain your answer.

Answer 1

P($)	Q	TR($)	MR($)	MC($)	TC($)	Profit($)
290	0	0	---	---	1000	-1000
280	1	280	280	100	1100	-820
270	2	540	260	80	1180	-640
260	3	780	240	60	1240	-560
250	4	1000	220	40	1280	-280
240	5	1200	200	60	1340	+140
230	6	1380	180	80	1420	+60
220	7	1540	160	120	1540	0
210	8	1680	140	160	1700	-20
200	9	1800	120	280	1980	-180

(b) Firm starts to experiencing diminishing marginal return from 5th unit onwards. From the 5th unit firm's marginal cost starts to rise and it shows there is a decreasing return and increasing cost and it shows there is a diminishing returns.

(c) Firm-B's TFC increasing in all units of output and we have got adding marginal cost at every unit of output. 4 units of TFC is given i.e 2nd, 6th, 7th and 9th unit's TFC is given. The remaining unit's TC has been determined by adding MC on that unit.

(d) Firm maximize it's profit at 5 units of output and at this level firm's profit is 140 dollars which is highest than any other units of output. At this level of output MR and MC are not equalised but profit is highest.

(e) If firm produce in the short run it's profit level will be $120 and this profit level is best among all others.