Question

11. The following graph represents a firm. (7 pts.) MC ATC 56 32 27 15 17 18 20 MR a. Is this a representation of a monopoly or a firm in the perfectly competitive market? b. What quantity should the firm produce to maximize their profit? c. What quantity is the socially optimum quantity? d. What price should the firm sell their product to maximize their profit? e. What price is the socially optimum price? f. Illustrate in the graph the maximum profit the firm can earn.

Answer 1

a)
the firm is a monopoly firm because the MR and demand curve is downward sloping

b)
the firm produces at MR=MC where Q=17 units
c)
the socially optimum quantity is at MC=P where Q=20 units

d)
the firm should charge price from demand curve at the output level which is $59

e)
the socially optimum price is equal to MC at the socially optimum production level and that is $56
f)

profit=(P-ATC)*Q

11. The following graph represents a firm. (7pts.) MC ATC 59 56 profit 32 27 15 17 18 20 MR