Consider the competitive market for halogen lamps. The following graph shows the marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves for a typical firm in the industry. For each price in the following table, use the graph to determine the number of lamps this firm would produce in order to maximize its profit. Assume that when the price is exactly equal to the average variable cost, the firm is indifferent between producing zero lamps and the profit-maximizing quantity. Also, indicate whether the firm will produce, shut down, or be indifferent between the two in the short run. Lastly, determine whether it will make a profit, suffer a loss, or break even at each price.
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.
