In a Monopoly market, a firm is a price maker since there are no close substitut
ID: 1256943 • Letter: I
Question
In a Monopoly market, a firm is a price maker since there are no close substitutes to the product. You are asked to find the company’s Shut-Down, Break-Even, and Profit-Maximization points. Fixed Costs remains at $1,000.00.
Q
P=D
TC
TR
TP
ATC
TVC
AVC
AFC
MC
MR
0
$199.99
$1,000
10
$189.99
$3,000
20
$179.99
$4,000
30
$169.99
$5,000
40
$159.99
$7,000
50
$149.99
$9,500
60
$139.99
$12,250
70
$129.99
$15,250
80
$119.99
$18,500
90
$109.99
$22,000
100
$99.99
$26,000
Q
P=D
TC
TR
TP
ATC
TVC
AVC
AFC
MC
MR
0
$199.99
$1,000
10
$189.99
$3,000
20
$179.99
$4,000
30
$169.99
$5,000
40
$159.99
$7,000
50
$149.99
$9,500
60
$139.99
$12,250
70
$129.99
$15,250
80
$119.99
$18,500
90
$109.99
$22,000
100
$99.99
$26,000
Explanation / Answer
Working notes:
(1) TR = P x Q
(2) MR = Change in TR / Change in Q
(3) TP = Q
(4) TC = TVC + FC, So TVC = TC - 1,000
(5) AVC = TVC / Q
(6) AFC = FC / Q = 1,000 / Q
(7) MC = Change in TC / Change in Q
(8) Profit = TR - TC
(9) ATC = TC / Q
(a) Shut down price is when TR < TC (Since firm is price-maker).
Shut-down price point is at P = $189.99, Q = 10
(b) The firm breakseven when profit = 0
This is between Q = 20 and Q = 30
(c) Profit is maximized at P = $169.99 and Q = 30 (Maximum profit = $99).
Q P TR TP TC ATC TVC AVC AFC MR MC Profit 0 199.99 0.00 0 1,000 0 -1,000.00 10 189.99 1,899.90 10 3,000 300.00 2,000 200.00 100.00 189.99 200 -1,100.10 20 179.99 3,599.80 20 4,000 200.00 3,000 150.00 50.00 169.99 100 -400.20 30 169.99 5,099.70 30 5,000 166.67 4,000 133.33 33.33 149.99 100 99.70 40 159.99 6,399.60 40 7,000 175.00 6,000 150.00 25.00 129.99 200 -600.40 50 149.99 7,499.50 50 9,500 190.00 8,500 170.00 20.00 109.99 250 -2,000.50 60 139.99 8,399.40 60 12,250 204.17 11,250 187.50 16.67 89.99 275 -3,850.60 70 129.99 9,099.30 70 15,250 217.86 14,250 203.57 14.29 69.99 300 -6,150.70 80 119.99 9,599.20 80 18,500 231.25 17,500 218.75 12.50 49.99 325 -8,900.80 90 109.99 9,899.10 90 22,000 244.44 21,000 233.33 11.11 29.99 350 -12,100.90 100 99.99 9,999.00 100 26,000 260.00 25,000 250.00 10.00 9.99 400 -16,001.00Related Questions
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