Question

Exercise 22 Assume a firm producing an output rate Q for which: 4 Would you recommend it to increase or decrease output? Why? 5 Is it productively efficient? Why? 6 Is allocative efficiency achieved? Why? 7 Ifit decreases output will unit costs decrease or increase? Why? 8 Should it produce more or less to maximize revenues instead? Why? 9 Should it produce more or less to break even? Why? 10 llustrate its position on an appropriate diagram AC P MR MC 45 60 -30 60 Rectangular Snip FlQures are in the currency of your choice. 1 Is this a perfectly competitive firm? Why? 2 Is it making positive economic profits? Why? Has this firm chosen the best output rate if its goal is to maximize profits? Why? Exercise 23 Exercise 24 Evaluate the view that a perfectly competitive market is more efficient than a monopoly market. Can monopolies benefit society? Illustrate your answer using appropriate diagrams Using an appropriate diagram and examples, explain the concept of a natural monopoly. What problem will such a firm face if asked by the regulator to price its output efficiently (i.e. to set price equal to marginal cost)?

I missed the lecture over monopolies in Economics and am having trouble with these practice problems.

Answer 1

Answer 22.

1. No the firm is not perfectly competitive firm because MR is not equal to P. Perfectly competitive firm is price taler and has MR=P for all levels of output.

2. Yes this firm is making positive economic profit since Price is greater than average cost .

3. No this is not the profit maximizing output level becausie MR≠MC.

4. Decreasing the output will increase the price, marginal revenue and profit for the firm.

Note-According to HOMEWORKLIB RULES first four parts are answered.