Question

CLASS ASSIGNMENT Name 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. This firm's fixed costs are $500, and other costs are shown in the table below Qs VC ATC MC Od Price TR MR 17 375 17 49 18 400 18 48 19 427 19 47 20 456 20 46 21 487 21 45 a. Calculate the ATC, MC, TR, and MR for the above table. b. In the short run, the firm's profit maximizing output is , and the price is at Is the firm earning an economic profit or loss? How much is its economic profit or loss? c. Assuming all frms have same cost functions, and facing the same demand schedule, will the number of firms increase in the long run? Explain your answer

Answer 1

QS VC TC VC + FC ATC = TC/Q MC QD Price TR P.Q MR 17 375 51.47 17 49 833 18 400 900 50 25 18 48 864 31 19 427 927 48.789 27 19 47 893 29 20 456 956 47.8 29 20 46 920 27 21 487 987 47 31 21 45 945 25 Monopolistic compt rightarrow in short Run pi max MR greaterthanorequalto MC so at Q = 19, MR > MC at Q = 20, MR < MC Thus Q* = 19, P* = 47 firm's eco pi/loss rightarrow it is loss bwz TR < TC loss = TC - TR = 927 - 893 = 34 integral long Run since existing firms incurring lassoes in short Run so films will exit from inquiry in long Run thus No. of firms in long Run will not uparrow