Question

Graph Worksheet 01 02 03 1. What is the price and quantity at the optimum level of production? Is this an economic profit, loss, or break-even? Should the firm produce? 2. If the industry model is monopolistic competition, what will happen to the industry? What will happen to the demand and marginal revenue curves for the individual firm? In the long run, where will the demand curve be? Will the firm achieve productive and/or allocative efficiency? 3. If the industry model is monopoly, what will happen to the industry? Will this firm achieve productive and/or allocative efficiency? Assume that the government regulates the firm. What price and quantity would result if they were regulated using the socially optimal option? Is this an economic profit, loss, or break-even? Should the firm produce?

Answer 1

1. The optimum level of production occurs at a point where the marginal cost(MC) of product equals the marginal revenue(MR), optimum output level is Q1. Firm at that point earns a profit as the price charged equals P4. Hence, total revenue is greater than total costs of production. Hence, the firm will produce.