1. (25 total points). You are given the following information about the costs of
ID: 1098774 • Letter: 1
Question
1. (25 total points). You are given the following information about the costs of a perfectly competitive firm.
Quantity
TFC
TVC
0
45
0
1
45
20
2
45
35
3
45
45
4
45
75
5
45
120
6
45
180
You are hired to determine the profit-maximizing quantity of the firm for different market prices. Complete the table below.
Market Price
Profit-maximizing level of output
Total Revenue
Total Cost
Profit
$14
$18
$44
$53
$70
2. (14 points) The short-run supply curve of a perfectly competitive firm is the firms marginal cost curve.
Carefully explain the two exceptions to the statement above.
3. (21 points) Suppose that, in a perfectly competitive market at the profit-maximizing quantity, the market price is greater than average total cost. Carefully explain what will happen to the number of firms, the market supply, and the price of the good as we move from the short run to the long run.
4. (40 total points) Suppose a monopolist faces the following demand curve:
P = 596 6Q. Marginal cost of production is constant and equal to $20, and there are no fixed costs.
a) (8 points) What is the monopolists profit-maximizing level of output?
b) (8 points) What price will the profit-maximizing monopolist charge?
c) (8 points) How much profit will the monopolist make if she maximizes her profit?
d) (8 points) What would be the value of consumer surplus if the market were perfectly competitive?
e) (8 points) What is the value of the deadweight loss when the market is a monopoly?
Quantity
TFC
TVC
0
45
0
1
45
20
2
45
35
3
45
45
4
45
75
5
45
120
6
45
180
Explanation / Answer
2).
Firstly, A competitive firm
Quantity TFC TVC TC profit@14 profit@18 profit@44 profit@53 profit@70 0 45 0 45 -45 -45 -45 -45 -45 1 45 20 65 -51 -47 -21 -12 5 2 45 35 80 -52 -44 8 26 60 3 45 45 90 -48 -36 42 69 120 4 45 75 120 -64 -48 56 92 160 5 45 120 165 -95 -75 55 100 185 6 45 180 225 -141 -117 39 93 195Related Questions
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