ECON 20A Study Guide - Final Guide: Marginal Revenue, Marginal Cost, Natural Monopoly

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turquoisegnu128

2 Oct 2018

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Please do well: the diagram below shows the reaction curves for each of the two firms in a duopoly. That is, each curve shows one firm"s profit- maximizing output for a given output by the other firm. Answer: the reaction curve shows firm 1"s profit maximizing output. At points a and b firm 2 produces the same amount, say 50. At point a price = average total cost, so the firm earns zero economic profits. At the quantity the firm sells in market a, its marginal revenue in that market is 4. The marginal revenue function in market b is given by the equation mrb=20-4qb. What quantity does the firm sell in market. Answer: for any total output by the firm, the firm maximizes profits by maximizing revenue from that output. That requires that marginal revenue be equal in all markets. So if marginal revenue in market a is 4, marginal revenue in market b must also be 4.

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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.

raspberryhorse277

The graph below depicts a hypothetical monopoly.

1. Place the point E at the monopoly's maximizing price and output.

2. Move the average total cost curve to a position that depicts the monopoly earning positive profits.

3. Place the red label profit in the area of the graph that represents the monopoly's profit.

pearweasel403

1. A monopoly firm is different from a competitive firm in that:
A. There are many substitutes for the monopolist's product, whereas there are no close substitutes for the competitive firm's product
B. The monopolist's demand curve is perfectly inelastic, whereas the competitive firm's demand curve is perfectly elastic
C. The monopolist is a price-maker, whereas the competitive firm is a price-taker
D. The monopolist always earns economic profits in the long run, whereas the competitive firm never earns economic profits in the long run

2. In the long run, an entrepreneur managing a perfectly competitive firm will earn:
A. Zero normal profits B. Economic profits and normal profits
C. The opportunity cost of operating the firm D. Negative economic profits

3. Refer to the graph above. The maximum possible total profit this monopolist can earn per day is:
A. $0 B. $1800 C. $2400 D. $4200

4. If marginal cost exceeds marginal revenue, the firm

A. is most likely to be at a profit-maximizing level of output.

B. should increase the level of production to maximize its profit.

C. must be experiencing losses.

D. may still be earning a profit.

5. A perfectly competitive firm maximizes profit by producing 500 units of output

purplegerbil891

ECON 20A Study Guide - Final Guide: Marginal Revenue, Marginal Cost, Natural Monopoly

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