Question

 

Answer the following Questions for a Monopoly Firm.

Price	Quantity	Total Revenue (TR)	Marginal Revenue (MR)	Marginal Cost (MC)	Total Cost (TC)	Profit
$2000	0		----	----	$2,000
$1900	1			$600
$1800	2				$3,000
$1700	3				$3,100
$1600	4				$3,200
$1500	5			$300
$1400	6				$4,100
$1300	7			$900
$1200	8				$6,200
$1100	9			$1,600
$1000	10
$900	11

To complete the table you need to know that the Average Total Cost (ATC) of producing 10 units of output is $980 and that the Total Variable Cost (VC) of producing 11 units of output is $10,400.

a) Fill in the missing information above for this Monopoly Firm. Note there are no numbers for MC and MR when Q=0.

b) At which unit of output does Diminishing Marginal Returns start? Please explain your answer.

c) If this firm produces in the Short Run, determine its profit maximizing/loss minimizing output level. Please explain your answer using MC and MR.

d) If this firm produces in the Short Run, determine its profit maximizing/loss minimizing price.  

e) If this firm produces in the Short Run, state its profit maximizing/loss minimizing profit amount.

f) If this firm shuts down in the Short Run, determine its profit maximizing/loss minimizing profit amount. Please explain your answer.

  

g) What should this firm do in the Short Run in order to maximize its profits/minimize its loss (produce or shut down)? Please explain your answer using numbers.

h) Explain what this firm should do in the Long Run. Why?

Answer 1

P	Q	TR	MR	MC	TC	PROFIT
2000	0	0			2000	-2000
1900	1	1900	1900	600	2600	-700
1800	2	3600	1700	400	3000	600
1700	3	5100	1500	100	3100	2000
1600	4	6400	1300	100	3200	3200
1500	5	7500	1100	300	3500	4000
1400	6	8400	900	600	4100	4300
1300	7	9100	700	900	5000	4100
1200	8	9600	500	1200	6200	3400
1100	9	9900	300	1600	7800	2100
1000	10	10000	100	2000	9800	200
900	11	9900	-100	2600	12400	-2500

b) Diminishing marginal returns starts when the MC curve starts increasing at Q= 5 units

c) Setting MC=MR, the firm will produce Q=6 units

d) Profit maximizing price = 1400

e) Profits = TR-TC = 8400-4100 = 4300

f) When the firm shuts down in the short run,it will incur loss equal to its fixed cost of 2000

g) The firm should produce in the short run as it is able to earn positive economic profits by setting MC=MR

h) This firm will produce in the long run,as it is a monopoly firm,it will earn positive economic profits.