Question
This firm is one of a 1,000, exactly the same, operating in a perfectly competition market. Based on the diagram below complete the questions in
This firm is one of a 1,000, exactly the same, operating in a perfectly competition market.
Based on the diagram below complete the questions in Parts 1 and 2.
Part 1
a)If the equilibrium price in the industry market is $7, what is the Marginal Revenue for this firm?
b)At a market price of $7 what is the Average Revenue for this firm?
c)At a price of $7 how many units will this firm produce in the short run to maximize profit? (look for MR = MC, Round off your answer to the nearest 100 units)
d)What is the unit cost at the level of output in c), ? (Check ATC)
e)What will be its profit or loss per unit at this level of output?
5 Marks
Part 2
a)At a price of $5.50 how many units will this firm produce in the short run to maximize profit?
b)What is the cost per unit at this level of output? (See ATC)
c)What will be its profit or loss per unit at this level of output?
3 Marks
Question 3 - 20 Marks (See FIG 11-10, old Textbook page 298, new Textbook page 285)
The table below shows costs and demand data for a monopoly.
Quantity
Marginal
Average unit
Marginal
Demanded
Price
Revenue
Cost
cost
0
$35.00
100
32.00
$ 32.00
$48.00
$48.00
200
29.00
26.00
30.00
12.00
300
26.00
20.00
23.34
10.00
400
23.00
14.00
21.00
14.00
500
20.00
8.00
20.00
16.00
600
17.00
2.00
19.50
17.00
700
14.00
-4.00
19.28
18.00
800
11.00
-10.00
18.68
18.50
900
8.00
-16.00
18.72
19.00
(a)If the monopoly is unregulated by the government:
i.)what price will they charge? Explain why?2 Mark
ii.)what output will they produce?2 Marks
iii.)How much profit will they make?2 Marks
(b)If the monopoly is regulated by the government and is only allowed to sell their product at a price equal to their marginal cost, (Socially Optimal price) using the data in the table:
i.)what price can they charge? Explain why?2 Marks
ii.)what output will they produce?2 Marks
iii.) How much profit will they make?2 Marks
(c)If the monopoly is regulated to charge their average unit cost, (Fair-return price) using the data in the table:
i.)what price will they charge? Explain why?2 Marks
ii.)what output will they produce?2 Marks
iii.)How much profit will they make?2 Marks
(d)When it comes to a monopoly, why do we need the government to help. 2 Marks
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Business Law
Authors: Henry Cheeseman
8th Edition
0133130649, 9780133130645
