Question
Part i) (5 marks) Assume that the short-run cost and demand data given in the table below confront a monopolistic competitor selling a given product
Part i) (5 marks)
Assume that the short-run cost and demand data given in the table below confront a monopolistic competitor selling a given product and engaged in a given amount of product promotion. Compute the marginal cost and marginal revenue of each unit of output and enter these figures in the table or answer in the box below.
Output | Total Cost | Marginal Cost | Quantity demanded | Price | Marginal revenue |
0 | $25 | 0 | $60 | ||
1 | 40 | $ | 1 | 55 | $ |
2 | 45 | 2 | 50 | ||
3 | 55 | 3 | 45 | ||
4 | 70 | 4 | 40 | ||
5 | 90 | 5 | 35 | ||
6 | 115 | 6 | 30 | ||
7 | 145 | 7 | 25 | ||
8 | 180 | 8 | 20 | ||
9 | 220 | 9 | 15 | ||
10 | 265 | 10 | 10 |
- Using the MR MC approach that we have learned for all market structures i.e. Perfect Competition and Monopoly, at what output level and at what price will the firm produce in the short run? What will be the total economic profit/loss? Show all calculations.
Part ii) (5 marks)
How would consumer and producer surplus change if a monopolist was required to produce the level of output that achieves allocative efficiency? Explain.
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