Question

A profit-maximizing monopolist charges a price of $36. The intersection of the marginal revenue and marginal cost curves occurs where output is 20,000 units and marginal cost is $24. Average total cost for 20,000 units of output is $32. As a result, the monopolist’s profit is more than $80,000.

true or false

The continuous downward slope of the average total cost curve suggests that the profit-maximizing natural monopolist is able to exploit economies of scale to keep competitors from successfully entering the market

true or false

Suppose that a monopoly firm maximizes its profit by producing 10,000 units of output. At that level of output, its marginal revenue is $30, its average revenue is $50, its average total cost is $45 and average variable cost is $38. If the firm operates at the output amount where marginal cost is $30, then the firm’s profit is less than $75,000 but more than $60,000.

true or false

Answer 1

1. p = 36, ATC = 32

Profit = (P-ATC)*Q = (36 - 32)*20000 = 4 * 20000 = 80000

Profit is equal to 80000 not more than 80000

So given statement is FALSE

2. Given statement is TRUE, monopolist is able to exploit economies of scale to prevent entry of competitors from entering the market

3.

TR = AR * Q = 50 * 10000 = 500000

TC = ATC * Q = 45 * 10000 = 450000

Profit = TR - TC = 50000

So it is not in between 60000 & 75000

So given statement is FALSE