Question

Please answer Letter G only.

Price	Quantity	TR	MR	MC	TC	Profit
$15,000	0	0	----	----	20000	-$20,000
14,000	1	14000	14000	$2,000	22000	-8000
13,000	2	26000	12000	1000	$23,000	3000
12,000	3	36000	10000	1000	$24,000	12000
11,000	4	44000	8000	1000	$25,000	19000
10,000	5	50000	6000	$3,000	28000	22000
9,000	6	54000	4000	$5,000	33000	21000
8,000	7	56000	2000	8000	$41,000	15000
7,000	8	56000	0	$12,000	53000	3000
6,000	9	54000	-2000	20000	$73,000	-19000
5,000	10	50000	-4000	$30,000	103000	-53000
4,000	11	44000	-6000	40000	143000	-99000
3,000	12	36000	-8000	60000	203000	-167000

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 12 units of output is $183,000 and the Average Total Cost (ATC) of producing 11 units of output is $13,000.

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

Answer 1

A firm continues to have positive marginal profits as long as the marginal revenue exceeds the marginal cost.

Therefore, if there is no exact output at which MR = MC, then the firm choose the highest output until which the marginal revenue remains higher than the marginal cost.

From the table, we observe that marginal revenue is higher than marginal cost until an output of 5 units.

For the 6th unit of output, MC = $5,000 and MR = $4,000

Marginal Profit/Loss = MR - MC = $4,000 - $5,000 = -$1,000

If the firm produces the 6th unit of output, its marginal revenue falls below the marginal cost and hence it incurs a marginal loss on the 6th unit.

Alternately, it can be observed from the profit column in the table that the profit increases up to 5 units of output and decreases beyond that.

Therefore, the firm should produce 5 units of output to maximise its profits in the short-run