Question

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

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?

Declare whether each below is True or False. If you say False for any statement, you must explain clearly your reason for answering False in order to receive credit.

f) Since Monopolies have no competition, they will not pay for advertising.

g) The market sets the price for Oligopolies.

h) Product Differentiation provides no benefit to society.

Answer 1

f) The profit maximizing amount is the highest amount of positive profit( TR- TC) which is earned by the firm ie $ 4300 .

g) Profit is maximized at the point where the difference between TR- TC is the highest, which is at 6 units of Quantity at price $1400. And the profit is $ 4300.

h) In the long run , it should strive to achieve economies of scale . Also, its Revenue should be higher than the costs incurred, for that either it should increase the selling price of the product or reduce the production cost incurred.

True/ False:

f) Since Monopolies have no competition, they will not pay for advertising - False, Monopolies do advertise, they do it in order to educate/inform the non- clients, this will help them  to gain new customers and to increase their market share.

g) The market sets the price for Oligopolies - False, price is determined by the sellers ( which are few in number and interdependent). After determination of prices, price rigidity is maintained.

h) Product differentiation provides no benefit to society- False, Product Differentiation  allows the seller to contrast its own product with competing products in the market and emphasize the unique aspects that make its product superior.When product differentiation is seen as a strategy to improve products rather than just to make them different, product differentiation emerges as the engine of economic progress.