Question

3. See the table below that was assigned to you as homework in a previous week.  Suppose that the market price is $13 per unit.

Quantity	Total Cost	Fixed Cost	Variable Cost	ATC	AVC	MC
0	$18	$18	0	18	0	0
1	$27	$18	$9	$27	$9	$9
2	$32	$18	$14	$16	$7	$5
3	$33	$18	$15	$11	$5	$1
4	$40	$18	$22	$10	$5.50	$7
5	$60	$18	$42	$12	$8.40	$20

a. What quantity will the firm produce? Why?

b. At that quantity level, what profits or losses will this firm make?

c. The breakeven price is the point at which the price equals the minimum ATC. At what price would this firm break even?

d. The textbook indicates that if product price equals the minimum of AVC or lower, the firm must shut down because at any quantity that the firm produces, the revenue that the firm gets is not even enough to pay the variable costs of production.  What is the shutdown price, in the table above?

4. How is a monopoly different from perfect competition?

5. How does the quantity produced and price charged by a monopoly compare to that of a perfectly competitive firm?

Answer 1

Answer : 3)

a)According to the given informations,

At quantity, Q=0; TR (Total revenue) = P×Q =13×0 = 0 ; TC (Total Cost) = 18; Profit = TR - TC = 0 - 18 = - 18. Here the firm faces loss.

At Q=1; TR= P×Q= 13×1= 13; TC= 27; Profit= TR - TC = 13 - 27 = - 14. Here the firm faces loss.

At Q=2; TR = 13×2= 26; TC= 32; Profit= 26 - 32 = -6. Here the firm faces loss again.

At Q=3; TR= 13×3 = 39; TC= 33; Profit= 39 - 33 = 6.

At Q= 4; TR= 13×4 = 52; TC= 40; Profit = 52 - 40 = 12.

At Q= 5; TR= 13×5 = 65; TC= 60; Profit= 65 - 60 = 5.

Now, we can say that the firm will produce the quantity level 4. Because at this quantity level the firm earns highest profit in comparison to other quantity levels.

b) At quantity level 4, the firm earns maximum profit $12.

c) According to the given information, here

Price = Minimum ATC. According to the given table information, minimum ATC = $10.

Now, price = $10

Therefore, at price level $10, the firm would face break even situation.

d) At shutdown point, Price = Minimum AVC.

According to the given table information, minimum AVC is $5.

Now, price = $5

Therefore, at price level $5, the firm will shutdown it's production.