a. What output should be produced? b. What will be the price? c. How much profit

Question

a. What output should be produced?

b. What will be the price?

c. How much profit is made?

d. If the firm can change plant size and move into the long run, what will be output and price?

e. Will profit increase? How do you know?

f. Draw in the new short run average and marginal cost curves associated with the new plant size.

Consider a monopoly firm with the demand and cost curves below. Assume that the firm is operating in the short run with the plant designed to produce 400 units of output optimally.

Explanation / Answer

a. 400

b 6.25 dollar

c. Total Profit =( (6.25 *400)- 4*400 /1600)= 56.25%

d. 900 & 5.75Price

e. Profit with long run

total profit (5.75*900 - 4*900)/3600 = 43.75 %

decrease in profit

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