Question

Answer A-H Please

Answer the following Questions for a Monopoly Firm.

Price	Quantity	TR	MR	MC	TC	Profit
$15,000	0		----	----	$50,000
14,000	1				$52,000
13,000	2				$53,000
12,000	3				54,000
11,000	4			$2,000
10,000	5				59,000
9,000	6			4,000
8,000	7				$69,000
7,000	8			$8,000
6,000	9
5,000	10
4,000	11			$18,000
3,000	12				$143,000

a) Fill in the missing information above for this Monopoly Firm for its monthly production. Note there are no numbers for MC and MR when Q=0. Please note that the Total Variable Cost (VC) of producing 9 units of output is $37,000 and the Average Total Cost (ATC) of producing 10 units of output is $10,100.

b) At which unit of output does Diminishing Marginal Returns start? Please explain your answer.

c) If this firm produces in the Short Run, determine its profit maximizing/loss minimizing output level. Please explain your answer using MC and MR.

d) If this firm produces in the Short Run, determine its profit maximizing/loss minimizing price.

e) If this firm produces in the Short Run, state its profit maximizing/loss minimizing profit amount (from the profit column) .

f) If this firm shuts down in the Short Run, determine its profit maximizing/loss minimizing profit amount. Please explain your answer.

g) What should this firm do in the Short Run in order to maximize its profits/minimize its loss (produce or shut down)? Please explain your answer using numbers.

h) Explain what this firm should do in the Long Run.

Answer 1

a.

Price	Quantity	TR	MR	MC	TC	Profit	AVC
15,000	0	0			50,000	-50,000
14,000	1	14000	14000	2,000	52,000	-38,000	2,000
13,000	2	26000	12000	1,000	53,000	-27,000	1,000
12,000	3	36000	10000	1,000	54,000	-18,000	1,000
11,000	4	44000	8000	2,000	56000	-12,000	2,000
10,000	5	50000	6000	3,000	59,000	-9,000	3,000
9,000	6	54000	4000	4,000	63000	-9,000	4,000
8,000	7	56000	2000	6,000	69,000	-13,000	6,000
7,000	8	56000	0	8,000	77000	-21,000	8,000
6,000	9	54000	-2000	10,000	87000	-33,000	10,000
5,000	10	50000	-4000	14,000	101000	-51,000	14,000
4,000	11	44000	-6000	18,000	119000	-75,000	18,000
3,000	12	36000	-8000	24,000	1,43,000	-1,07,000	24,000

b. Diminishing marginal returns start from Q=2 as the MR starts to decrease with the increase in output

c. At Q=6, loss is minimized at MC=MR=4000

d. $9000

e. -$9000

f. $50000. As the fixed cost is $50000 which needs to be borne irrespective of production

g. In short run as the AVC=$4000 which is more than the price = $9000 the firm can continue production in short run

h. In the long the firm needs to shut down as it cannot continue to be under losses forever else it needs to reduce cost through innovative technology