Suppose that initially the data in Problem 24-17 apply, but then an increase in fixed costs occurs. As a result, the ATC curve in Figure 24-6 shifts upward. Consequently, the average total cost of producing 9.5 units of output rises to $5 per unit. Does the monopolist's profit-maximizing weekly output rise, fall, or remain the same? What is the new amount of maximized weekly economic profits?

Problem 24-17

Take a look at Figure 24-6. Suppose that Q₁, is 9.5 units per week, that P, is $6.10 per unit, and that the average total cost of producing the 9.5 units is $4.26 per unit. What is the dollar amount of maximized monopoly profits displayed by the green area?

Transcribed Image Text:

FIGURE 24-6 Monopoly Profit We find monopoly profit by subtracting total costs from total revenues at a quantity of satellite TV services of between 9 and 10 units per week, labeled Q, which is the profit-maximizing rate of output for the satellite TV monopolist. The profit-maximizing price is therefore slightly more than $6 per week and is labeled Par Monopoly profit is given by the green-shaded area, which is equal to total revenues (P X Q) minus total costs (ATC X Q). This diagram is similar to panel (c) of Figure 24-4, with the short-run average total cost curve (ATC) added. Price, Marginal Revenue, and Cost per Unit ($) E 10 9 8 160 12 4 3 2 1 ATC Monopoly profit MC a MR 0 1 2 3 4 5 6 7 8 9 10 11 12 13 Satellite Television Services (units per week)