Question

Perfect Competition Price of output: $10 Fixed costs: $200 Variable Cost Fixed Cost Total Cost Avg Variable Avg Fixed | Cost Cost Avg Total Cost Total Marginal Marginal Revenue Revenue Cost Output SO $0 $14.50 $10.63 $100 $200 $300 $400 $500 $600 $700 $800 $9.92 $10.50 $50 $250 $20.00 $90 $4.50 $160 $360 $5.33 $6.67 $225 $300 $500 $6.00 $4.00 $395 $510 $710 $7.29 $2.86 80 $640 $8.00 1. What is the profit-maximizing level of output? 2. What are profits at this point? Monopoly Avg Variable Fixed Total Variable Avg Fixed Output Cost Cost Cost Cost Cost Cost $200 $50 $20.00 $90 $290 $4.50 $160 $5.33 $6.67 $225 $425 $300 $6.00 $4.00 $395 $510 $710 $7.29 $2.86 80 $640 $8.00 1. What is the profit-maximizing level of output? 2. What are profits at this point? Avg Total Cost Price Total Marginal Marginal Revenue Revenue Cost $18 $17 $16 (hint:copy all the costs from the previous table-these did not change) $14.50 $15 $10.63 $9.92 | $14 $13 $12 $11 $ 10 $720 $770 $800 $10.50

In perfect competition the price is ALWAYS $10. In the monopoly, the price changes.

Answer 1

Perfect competition:-

Q	VC	FC	TC	AVC	AFC	ATC	P	TR	MR	MC
0	0	200	200				10	0
10	50	200	250	5.00	20.00	25.00	10	100	10	5
20	90	200	290	4.50	10.00	14.50	10	200	10	4
30	160	200	360	5.33	6.67	12.00	10	300	10	7
40	225	200	425	5.63	5.00	10.63	10	400	10	6.5
50	300	200	500	6.00	4.00	10.00	10	500	10	7.5
60	395	200	595	6.58	3.33	9.92	10	600	10	9.5
70	510	200	710	7.29	2.86	10.14	10	700	10	11.5
80	640	200	840	8.00	2.50	10.50	10	800	10	13

a) Setting P=MC, the output = 60

b) profits = TR-TC = 600-595 =5

Monopoly:-

Q	VC	FC	TC	AVC	AFC	ATC	P	TR	MR	MC
0	0	200	200				18	0
10	50	200	250	5.00	20.00	25.00	17	170	17	5
20	90	200	290	4.50	10.00	14.50	16	320	15	4
30	160	200	360	5.33	6.67	12.00	15	450	13	7
40	225	200	425	5.63	5.00	10.63	14	560	11	6.5
50	300	200	500	6.00	4.00	10.00	13	650	9	7.5
60	395	200	595	6.58	3.33	9.92	12	720	7	9.5
70	510	200	710	7.29	2.86	10.14	11	770	5	11.5
80	640	200	840	8.00	2.50	10.50	10	800	3	13

a) Setting MR=MC, the output = 50 units

b) profits = TR-TC = 650-500 = 150