Each scenario provides the price and output level at which a single-price monopo
ID: 1111272 • Letter: E
Question
Each scenario provides the price and output level at which a single-price monopolist is currently operating. In each case, determine the firm's profit per unit, the firm's total profit, and whether the firm should increase or decrease its output in order to maximize profits. (Drawing diagrams may help you to answer these questions. Prices and costs are in dollars.) a. p = 20, Q=400, MR-9, ATC = 8, MC-9 The firm's profit per unit is Se firm's total profit is S The firm should b, p = 17, Q = 100, MR-14, ATC = 6.50, MC 3.50 The firm's profit per unit is S and the firm's total profit is output in order to maximize profits because The firm should c, p=12,Q-640, MR = 4, ATC-6, MC-7 The firm's profit per unit is Sandthe firm's total profit is S The firm should output in order to maximize profits because | output in order to maximize profits becauseExplanation / Answer
(a)
Profit per unit = p - ATC = $(20 - 8) = $12
Total profit = Q x (p - ATC) = 400 x $12 = $4,800
Firm should not change output to maximize profit because its MR = MC, therefore it is already maximizing profit.
(b)
Profit per unit = p - ATC = $(17 - 6.5) = $10.5
Total profit = Q x (p - ATC) = 100 x $10.5 = $1,050
Firm should increase output to maximize profit because its MR > MC, therefore Marginal profit is positive which can be increased by increasing output and it is not maximizing profit.
(c)
Profit per unit = p - ATC = $(12 - 6) = $6
Total profit = Q x (p - ATC) = 640 x $6 = $3,840
Firm should decrease output to maximize profit because its MC > MR, therefore Marginal loss is positive which can be decreased by decreasing output and it is not maximizing profit.
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