How much profit (or loss) does the firm make by producing q*

economics

Description

  1. Complete the following monopoly costs and revenues table:

 

Quantity

Price

TR

MR

TC

MC

TFC

TVC

AFC

AVC

ATC

Profit

1

1000

 

 

 

 

 

 

 

 

 

-100

2

 

 

 

 

500

 

 

 

 

 

 

3

 

2400

 

 

 

 

 

 

 

 

600

4

 

 

400

 

 

 

 

 

 

500

 

5

 

 

 

 

400

500

 

 

 

 

 

6

 

 

 

3000

 

 

 

 

 

 

 

7

 

 

 

 

 

 

 

 

500

 

 

8

 

 

 

 

 

 

4500

 

 

 

 

 

 

 

 

 

 

  1. A monopoly firm has the following demand and cost conditions:

 

            P = 15 – 2q

 

            TC = 15 + 3q + q2

 

                MC = 3 + 2q

 

a. Find the output level q* which maximizes the monopolist’s profit (show work) _______

 

 

 

 

 

 

            b. Calculate the monopolist’s profit (or loss) at q* ________

 

 

 

 

            c. Should the firm shut down or continue producing? Explain.

 

 

 

 

 

            d. Calculate the monopolist’s AVC at q*?  ________

 

 

 

 

 

            e. What is the firm’s MC at the output level q*? __________

 

 

 

 

f. If the firm was a purely competitive firm, how much would it have produced and at what    price? Show work.

 

             

 

 

 

 

 

  1. Consider a perfectly competitive firm, operating under the following demand and cost conditions:

 

Price = $18

 

TC = 28 + 2Q + 0.5Q2

 

            MC = 2 + Q

 

a.       At what level of output (q*) will the firm maximize its profits?

 

 

 

 

b.      At that level of output, q*, how much Total Revenue does the firm earn?

 

 

 

 

 

c.       How much profit (or loss) does the firm make by producing q*

 

 

 

 

 

d.      What is the firm’s TFC?

 

 

 

 

e.       What is the firm’s AVC at the output level q*?

 

 

 

 

f.        If the market was made up of 100 identical firms, calculate the total market output. 

 

 

 

 

  1. Assume a monopoly market characterized by the following:

 

            P = 300 - Q (demand curve)

 

            MC = 150 + 3Q (marginal cost curve)

 

 

i.                    Find the monopolist’s equilibrium price and quantity consistent with profit maximization.

 

 

 

 

ii.                  What is the monopolist’s total revenue at the equilibrium quantity?

 

 

 

 

iii.                Now assume that the same monopoly firm produces for two different and separable markets – one domestic, the other, foreign, whose demand functions are given as follows:

 

P = 400 – 2Q (domestic market demand)

 

P = 200 – Q (foreign market demand)

 

If the firm now acts as a discriminating monopolist, calculate the price the firm would charge in each market.

 

 

 

5.      Consider a firm producing under conditions of pure competition, in a market characterized by the following demand and supply conditions:

 

            P = 200 – Qd (Demand);                    P = 100+ Qs (Supply)

 

i.                    What is the market equilibrium price and quantity?

 

 

 

 

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