1.Can a perfectly competitive firm make economic profit in the long run?Can a mo
ID: 1204541 • Letter: 1
Question
1.Can a perfectly competitive firm make economic profit in the long run?Can a monopoly firm make economic profit in the long run? Explain.
2.A monopolist can sell 20 toys per day for $8 each. To sell 21 toys per day, the price must be cut to $7. Find the marginal revenue of the 21st toy.
3.The data below relate to a pure monopolist and the product it produces. What is the profit-maximizing output and price for this monopolist? Is the firm making economic profit/loss/breaking even when it produces the equilibrium output? (use MR and MC to find equilibrium)3 points
Price
Q
Total Cost
22
0
20
20
1
24
18
2
27
16
3
32
14
4
40
12
5
49
10
6
59
4.Use the following graph for a profit-maximizing monopolist to answer the next questions.
a.What is the equilibrium output?
b.What is the equilibrium price?
c.Is the firm making an economic profit or loss? Describe the area.
5. Use the following graph for a pure monopoly to answer the next question.
a.If the government regulated the monopoly and made the firm set a fair-return price, what price and quantity levels would we observe in the short run?
b.If the government regulated the monopoly and made it produce the level of output that would achieve allocative efficiency, what price and quantity levels would we observe in the short run?
Price
Q
Total Cost
22
0
20
20
1
24
18
2
27
16
3
32
14
4
40
12
5
49
10
6
59
ATC MC MR 0Explanation / Answer
No a perfectly competitive firm doesn't make economic profit in the long run beccause a firm in perfectly competitive industry is a price taker and price in the perfectly competitive industry inlong run is equal to marginal cost, hence in Long run , No firm can earn economic profit.
Yes, a monopoly firm makes economic profit in the long run because a monopoly firm is a price maker in long run, and it produces till where it's marginal cost is equal to it's marginal revenue and price will be greater than marginal cost at this point and hence firm earns a economic profit in long run.
2. MR = TR2 - TR1 = 21*7 - 20*8 = 147 - 160 = -13
3. the profit-maximizing output and price for this monopolist would where MR = MC
So, P =14 , Q =4
the firm is making economic profit when producingequilibrium output.
4.
a Q
b A
c Is making profit =Area of rectangle ACFD
5 a. Q2 and P3
b Q3 and P2
Is the firm making economic profit/loss/breaking even when it produces the equilibrium output?
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