Question

1.If a cartel firm is producing a quantity at which the marginal revenue is $2 and the marginal cost is $2, the firm a. is producing the agreed upon quantity b. has erected a barrier to entry c. is producing less than the agreed upon quantity d. has acted in self-interest 2.If a monopolist is producing the profit-maximizing output level and at this output level, the marginal cost is 4 and the profit-maximizing price is $9, what is the make up? a. 0.22 b. 2 c. 5 d. 2.25 3.If a monopolistically competitive firm is producing 50,000 units of output and at this output level, the price is $200 and the average total cost is $198, the firm profit/loss is equal to and it possible for the firm to be in long-run equilibrium. a. $100,000; is b. $100,000; is not C. -$100,000; is d. -$100,000; is not

Answer 1

Answer : 1) The answer is option a.

Cartel firm produce that quantity level where marginal revenue is equal to marginal cost. Here at $2 the marginal revenue is equal to marginal cost. So, option a is correct.

2) The answer is option c.

Here marginal cost = $4

Price = $9

So, make up = 9 - 4 = $5

Therefore, option c is correct.

3) The answer is option b.

Per unit profit = Price - Average total cost = 200 - 198 = $2

Total profit = Per unit profit * Quantity = 2 * 50,000 = $100,000

In monopolistically competitive market if firms earn profit then many new firms enter into the market in long run. As a result, the profit becomes zero in long run. Here the firm earns profit which will attract more firms into the market in long run. As a result, the firm's profit of $100,000 is not possible in long run. Therefore, option b is correct.