Question

A monopolist with total cost function C(Q) = 500 + 2Q2 (and marginal cost function of MC = 4Q) faces a market demand function of QD = 600 – 2P. Is the monopolist operating in the short run or the long run? What answer explains this difference and how you know whether the firm is operating in the long or short run?

The firm is operating in the short run. This is because the cost function doesn't contain a variable cost and variable costs are only considered in the long run.

The firm is operating in the long run. This is because the cost function doesn't contain a fixed cost and fixed costs are only considered in the short run.

The firm is operating in the short run. This is because the cost function doesn't contain a fixed cost and fixed costs are only considered in the long run.

The firm is operating in the short run. This is because the cost function contains a fixed cost and fixed costs are only considered in the short run.

The firm is operating in the long run. This is because the cost function contains a fixed cost and fixed costs are only considered in the long run.

Answer 1

The firm is operating in the short run. This is because the cost function contains a fixed cost and fixed costs are only considered in the short run.

(C = 500 + 2Q² where 500 is the fixed cost as it is independent of output and 2Q² is the variable cost. Fixed costs are present only in the short run because in the long run, all factors are variable. So, it is operating in the short run because of fixed costs.)