Question

Price, marginal revenue, marginal cost, average total cost $35.... ATC 29.. 26. MC 8 5 0 160 220 250 300 Quantity of output (per weok) a. The profit-maximizing monopoly firm maximizes their profit at equals to The firm in the above figure will produce units of output per week. b. This profit-maximizing monopoly firm's price per unit is c. This profit-maximizing monopoly firm's cost per unit at its profit-maximizing quantity is d. This profit-maximizing monopoly firm's economic profit per unit is This profit maximizing monopoly firm's total economic profit is Will this profit maximizing monopoly firm's profit condition change in long run? Explain your answer: f. Is this monopoly firm achieving productive efficiency? Explain your answer

Answer 1

Answer : a) Monopoly firm maximize it's profit when MR = MC . Based on given diagram the firm produces 220 units of output per week. Because at 220 units of output per week the firm attains MR = MC condition.

b) The profit maximaximizing output level is 220 units. At this 220 units of output level the demand is $29. Hence the price of per unit profit maximizing output level is $29 .

c) At profit maximizing quantity level 220 units the per unit ATC is $16. So, at per unit profit maximizing output level the cost is $16 .

d) As per unit price is $29 and cost is $16, hence per unit economic profit for the firm is ($29 - $16) = $13 .

As per unit profit is $13 and output level is 220 units, hence firm's total profit is (13 * 220) = $2,860 .

As the given maket structure is a monopolistic market structure, hence in long run the profit condition does not change. Because there exists strong barrier on entry into the monopolistic market structure. Due to this strong barrier on entry in monopolistic market the rival firms can not enter into the market. Hence the monopolistic firm can continue it's profit condition in long run.