1.Discuss the profit maximizing position of a monopolistic, in both the short run and the long...

1.Discuss the profit maximizing position of a monopolistic, in both the short run and the long run

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Expert Solution

This is the market structure of having many sellers and buyers but dealing with differentiated products.

In the short-run, the stage of profit maximization (equilibrium) is the equality of marginal cost and marginal revenue, (MC = MR).

Equilibrium condition is (MC = MR). Therefore, the point E is equilibrium. At this point OQ quantity is produced at OP price. The shaded portion is economic profit, since the price is above ATC. The profit-maximizing price is P.

In the long-run all factors of production become variable; therefore, the ATC curve will make a tangent on the demand curve. The equilibrium condition is still (MC = MR); but since the ATC curve is on the demand curve, the firm can’t not enjoy any economic profit but should be on break-even. Therefore, the point E is equilibrium. At this point OQ quantity is produced at OP price, and there is no profit. The firm can’t earn economic profit in the long-run.

Rahul Sunny answered 1 year ago

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