Question

Answer A-H Please

Answer the following Questions for a Monopoly Firm.

Price	Quantity	TR	MR	MC	TC	Profit
$15,000	0		----	----	$50,000
14,000	1				$52,000
13,000	2				$53,000
12,000	3				54,000
11,000	4			$2,000
10,000	5				59,000
9,000	6			4,000
8,000	7				$69,000
7,000	8			$8,000
6,000	9
5,000	10
4,000	11			$18,000
3,000	12				$143,000

a) Fill in the missing information above for this Monopoly Firm for its monthly production. Note there are no numbers for MC and MR when Q=0. Please note that the Total Variable Cost (VC) of producing 9 units of output is $37,000 and the Average Total Cost (ATC) of producing 10 units of output is $10,100.

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 (from the profit column) .

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.

Answer 1

(a)

Working notes:

(1) TR = P x Q

(2) MR = Change in TR / Change in Q

(3) MC = Change in TC / Change in Q

(4) Profit = TR - TC

(5) TFC = 50,000 (= TC when Q = 0)

(6) When Q = 9, TC = TFC + TVC = 50,000 + 37,000 = 87,000

(7) When Q = 10, TC = ATC x Q = 10,000 x 10 = 100,000

Price	Quantity	TR	MR	MC	TFC	TVC	TC	Profit
15,000	0	0	----	----	50,000	0	50,000	-50,000
14,000	1	14,000	14,000	2,000	50,000	2,000	52,000	-38,000
13,000	2	26,000	12,000	1,000	50,000	3,000	53,000	-27,000
12,000	3	36,000	10,000	1,000	50,000	4,000	54,000	-18,000
11,000	4	44,000	8,000	2,000	50,000	6,000	56,000	-12,000
10,000	5	50,000	6,000	3,000	50,000	9,000	59,000	-9,000
9,000	6	54,000	4,000	4,000	50,000	13,000	63,000	-9,000
8,000	7	56,000	2,000	6,000	50,000	19,000	69,000	-13,000
7,000	8	56,000	0	8,000	50,000	27,000	77,000	-21,000
6,000	9	54,000	-2,000	10,000	50,000	37,000	87,000	-33,000
5,000	10	50,000	-4,000	13,000	50,000	50,000	1,00,000	-50,000
4,000	11	44,000	-6,000	18,000	50,000	68,000	1,18,000	-74,000
3,000	12	36,000	-8,000	25,000	50,000	93,000	1,43,000	-1,07,000

(b)

Diminishing marginal returns start when MC starts increasing, which starts from Q = 4 units.

(c)

Profit is maximized when MR = MC, which holds true when MR = MC = 4,000 at Q = 6 units.

(d)

When Q = 6, P = $9,000.

(e)

When Q = 6, Profit = -$9,000 (this is the minimum loss).

NOTE: As per Answering Policy, 1st 5 parts are answered.