Question

Q	FC	ATC	AVC	MC	P	MR
50	1000	40.00	20	20	92	39
51	1000	39.65	20.04	22	91	41
52	1000	39.35	20.12	24	90	39
53	1000	39.09	20.23	26	89	37
54	1000	38.89	20.37	28	88	35
55	1000	38.73	20.55	30	87	33
56	1000	38.61	20.75	32	86	31
57	1000	38.53	20.98	34	85	29
58	1000	38.48	21.24	36	84	27
59	1000	38.47	21.53	38	83	25
60	1000	38.50	21.83	40	82	23
61	1000	38.56	22.16	42	81	21
62	1000	38.65	22.52	44	80	19
63	1000	38.76	22.89	46	79	17
64	1000	38.91	23.28	48	78	15
65	1000	39.08	23.69	50	77	13
66	1000	39.27	24.12	52	76	11
67	1000	39.49	24.57	54	75	9
68	1000	39.74	25.03	56	74	7
69	1000	40.00	25.51	58	73	5
70	1000	40.29	26.00	60	72	3
71	1000	40.59	26.51	62	71	1
72	1000	40.92	27.03	64	70	-1
73	1000	41.26	27.56	66	69	-3
74	1000	41.62	28.11	68	68	-5
75	1000	42.00	28.67	70	67	-7
76	1000	42.39	29.24	72	66	-9
77	1000	42.81	29.82	74	65	-11
78	1000	43.23	30.41	76	64	-13
79	1000	43.67	31.01	78	63	-15
80	1000	44.13	31.63	80	62	-17

1 What is the socially efficient quantity?

2 What price maximizes profit for the monopoly?

3 The deadweight loss when the monopoly maximizes profit is

4 The maximum profit is for the monopoly is

5 What quantity maximizes profit for the monopoly?

FC = Fixed cost, ATC = Average Total Cost, AVC = Average Variable Cost, MC = Marginal Cost, P = Price, and MR = Marginal Revenue.

Answer 1

1.

Socially efficient quantity is when P = MC = 68, when Q = 74

2.

Monopoly profit is maximized when MR >= MC.

When Q = 55, MR > MC and when Q = 56, MR < MC. So,

Profit is maximized when Q = 55 and P = 87.

3.

Deadweight loss = (1/2) x Change in P x Change in Q = (1/2) x (87 - 68) x (74 - 55) = (1/2) x 19 x 19 = 180.5

4.

When Q = 55, ATC = 38.73.

Profit = Q x (P - ATC) = 55 x (87 - 38.73) = 55 x 48.27 = 2,654.85

5.

Monopoly Profit is maximized when Q = 55.