Use the graph below depicting a profit-maximizing/loss-minimizing monopolistical
ID: 1109698 • Letter: U
Question
Use the graph below depicting a profit-maximizing/loss-minimizing monopolistical competitive firm to answer questions 7 through 10. MC ATC $20 $10 S4i- MR 1,200 1,500 7. The profit-maximizing output is units and the profit-maximizing price is a. 1,200; $20 b. ,200; $10 C. d. 1500; $4 8. At the profit-maximizing/loss-minimizing level of output, total revenue is and deadweight loss is approximately total cost is a. $24,000; $12,000; $1,500 b. $12,000; $12,000; $3,000 c. $25,500; $6,000; $24,000 d. $24,000; $24,000: $1 500 9· The graph illustrates a typical firm in a market that is in long-run equilibrium since: the output level is socially efficient price is equal to minimum average total cost. a. b. c. price is equal to average total cost. d. price is equal to marginal cost. 10. Which of the following events would cause this firm's profit to increase? An increase in labor costs An increase in consumer demand A decrease in labor productivity a. b. d.A decrease in consumer demandExplanation / Answer
7. a. Monopolist is a price taker. He will determine the quantity of output that will maximize revenue. The monopolist faces a downward sloping demand curve because he can sell more if he lowers the price. The profit maximizing price and output is where marginal revenue equals marginal cost, then it is extended to the market demand curve to determine what market price corresponds to that quantity.
8. d.
Total Revenue= P x Quantity demanded = $20 x $1,200 = $2,400.
Total cost= $20 x $1,200 = $2,400.
Dead weight loss = Area of triangle = 1/2 x base x height = 1/2 x (1500-1200) x (20-10)= 1/2 x 300 x 10= 1/2 x 3000 = 1500
9 B. Price is equal to minimum average total cost
10 b. An increase in consumer demand. Since this is a monopoly, the seller will price his product according to demand. If the demand is high, the price will also be higher.
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