You are in charge of decision-making for a firm that is a pure monopoly. You know that P > ATC, and that MC > MR on the amount of output you are presently producing.
a) The board of directors of the firm wants to know if it is profitable. What do you tell them?
b) The board also wants to know if the enterprise is maximizing its' profit at present. What do you tell them about the profit-maximizing issue? On what do you base your answer, and if the firm is not maximizing profit at the current production level, what direction do you tell them you want to change the output to achieve the profit-maximizing objective?
You are in charge of decision-making for a firm that is a pure monopoly. You know that P > ATC, and that MC > MR on the amount of output you are presently producing.
a) The board of directors of the firm wants to know if it is profitable. What do you tell them?
b) The board also wants to know if the enterprise is maximizing its' profit at present. What do you tell them about the profit-maximizing issue? On what do you base your answer, and if the firm is not maximizing profit at the current production level, what direction do you tell them you want to change the output to achieve the profit-maximizing objective?
Related textbook solutions
Related questions
Answer the following Questions for a Monopoly Firm.
| Price | Quantity | TR | MR | MC | TC | Profit |
| $400 | 0 | $2,000 | ||||
| 390 | 1 | $200 | ||||
| 380 | 2 | 2,360 | ||||
| 370 | 3 | 2,500 | ||||
| 360 | 4 | |||||
| 350 | 5 | 2,720 | ||||
| 340 | 6 | |||||
| 330 | 7 | 3,060 | ||||
| 320 | 8 | $250 | ||||
| 310 | 9 | 3,630 | ||||
| 300 | 10 | $400 | ||||
| 290 | 11 | $500 |
a) Fill in the missing information above for this Monopoly Firm. Note there are no numbers for MC and MR when Q=0.
To complete the table you need to know that the ATC of producing 4 units of output is $650 and that the Total Variable Cost of producing 6 units of output is $870.
b) State the Total Fixed Cost for this firm. Please explain how you got your answer.
c) At which unit of output does Diminishing Marginal Returns start? Please explain your answer.
d) If this firm produces in the Short Run, determine its profit maximizing/loss minimizing output level. Please explain your answer using MC and MR.
e) If this firm produces in the Short Run, determine its profit maximizing/loss minimizing price.
f) If this firm produces in the Short Run, state its profit maximizing/loss minimizing profit amount.
g) If this firm shuts down in the Short Run, determine its profit maximizing/loss minimizing profit amount. Please explain your answer.
h) 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.
i) Explain what this firm should do in the Long Run.
