Question 1. Suppose you are working as a consultant for a firm that is a monopoly...

Question 1. Suppose you are working as a consultant for a firm that is a monopoly and is worried about its policies in the short run. What would you recommend in terms of quantity changes (raise, cut, shut down or stay put) and price changes (raise, cut, stay put) in each of the following situations a through c:

a. [5 points] P = $299 MC = $349 AVC = $249

b. [5 points] MR = $150 MC = $100 AVC = $140

c. [5 points] P = $288 MC = $288 AVC = $287

[Note: P = price; MR = marginal revenue; AVC = average variable cost; MC = marginal cost]

Solutions

Expert Solution

a) The firm should reduce output and raise its prices

b) The firm should increase its output and raise its prices

c) The firm should reduce output and raise its prices

Rahul Sunny answered 1 year ago

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