CAS EC 101 Study Guide - Midterm Guide: Oligopoly
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1. Profit Maximization under Monopoly.
1.1. Fill in the blanks in the following table using Excel formulas:
Q |
P |
TR |
TFC |
TVC |
AVC |
TC |
AC |
MR |
MC |
||
0 |
311,250 |
0.00 |
|||||||||
10,000 |
12.00 |
||||||||||
20,000 |
11.50 |
||||||||||
30,000 |
12.67 |
||||||||||
40,000 |
14.25 |
||||||||||
50,000 |
16.00 |
||||||||||
60,000 |
17.83 |
||||||||||
70,000 |
19.71 |
The demand function is given by: P=50-0.00025Q
1.2. Construct line charts for the Average Cost (AC), Average Variable Cost (AVC), Marginal Cost (MC), Marginal Revenue (MR), and Average Revenue (AR) on a Cartesian coordinate system.
Given following Price and Total Cost functions:
P = 120 - 7Q
TC = 40 + 70Q - 10Q2 + 0.6Q3
Where P = price, and Q is output.
Fill in the table below and answer the questions below the table.
Q |
P |
FC |
TVC |
TC |
TR |
Profit |
0 |
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1 |
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2 |
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3 |
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4 |
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5 |
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6 |
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7 |
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8 |
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9 |
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10 |
If your company's goal is to maximize profit, answer the following questions below:
What price will you charge for your product?
What quantity will you produce?
And what would be your maximum profit or minimum loss at the price and output you chose?
2. If your company's goal is to maximize total revenue, answer the following questions below:
What price will you charge for your product?
What quantity will you produce?
And what would be your maximum total revenue at the price and output you chose? (3 points)
Question 3
Given a firm with the following cost data, fill in the table below.
Q = OUTPUT TFC = Total Fixed Cost AVC = Average Variable Cost ATC = Average Total Cost TVC = Total Variable Cost MC = Marginal Cost TC = Total Cost
Q |
FC |
TVC |
TC |
AVC |
ATC |
MC |
0 |
--- |
--- |
--- |
|||
1 |
10 |
|||||
2 |
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3 |
10 |
10 |
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4 |
PROFIT MAXIMIZATION
Reminders:
Q: Quantity, TC: Total Costs, VC: Variable Costs, MC: Marginal Costs, MR: Marginal Revenue, TR: Total Revenue
1. Suppose the market for DVD movies is perfectly competitive. The industry price for the movies is $24, and a typical firm has the following total cost data:
Q | TC | VC | MC | MR | TR | Net Profit |
0 | 10 | |||||
1 | 33 | |||||
2 | 53 | |||||
3 | 70 | |||||
4 | 90 | |||||
5 | 114 | |||||
6 | 143 |
a. Calculate the TR, MR, and MC for each level of output.
b. What condition must be met for the firm to maximize profits? What is the profit maximizing level of output and price for this firm? How much profit would be made?
2. Now suppose that some firms have been able to differentiate their DVDs, and the market has become monopolistically competitive. A typical firm now has the following demand schedule and total cost data:
Q | P | TC | VC | MC | MR | TR | Net Profit |
0 | 40 | 8 | |||||
1 | 35 | 20 | |||||
2 | 30 | 28 | |||||
3 | 25 | 40 | |||||
4 | 20 | 56 | |||||
5 | 15 | 76 | |||||
6 | 10 | 100 |
a. Calculate the TR, MR, and MC for each level of output.
b. What condition must be met for the firm to maximize profits? What is the profit maximizing level of output and price for this firm? How much profit would be made?